Fire Alarm Companies

A simple model of banking regulation and, like, against-regulation is something like this:

regulators are cautious and silent, and want to protect bad banks risks, even at the cost of a good risk prevention, bankers are aggressive and intelligent, and you want to have a lot of good risks, even at the cost of assuming some bad risks, and Sometimes bankers can find the people you deal with your shit, and sometimes they can not.

^{"put up with her shit" is understood in the broadest sense - can defeat the Dodd-Frank bank? Brown-Vitter? Lloyd Blankfein is a hero or a villain? Jamie Dimon? Etc. - but an interesting question is that if you try to escape or elbow or optimize operations or other regulations, someone will do business with you? One could write a history of the recent finance with the answer to this question: In 2007, you could throw all its mortgage risk off-balance sheet securitization, in 2008 ... could not, and in 2013, if you are looking for someone to provide relief from regulatory capital all you have to do is call a capital reduction of the buffer fund. Six years from peak to peak, as the S & P.}

could probably use words like "bubble" in the characterization of this cycle, but I prefer the approach taken in this new work by Guillermo Ordo?ez NBER Penn (free version here), both because mathematically formalizes this basic model of the regulation and against-regulation in an interesting way, and because it's pleasantly cynical. As he says, "banks can always find ways to avoid self-regulation where possible, and indeed it is more efficient to do so."

bankers

course,

always

think it would be effective for them to find ways to escape regulation. Only

so when they can find someone to negotiate with them.

The essence of formalization is that banks can invest in insurance "," approved regulatory assets in risky assets "superior", which have a higher than safe assets yield the same risk but are not blessed by regulators

risky assets or "inferior" to have a head taller, but more risks and risk assets are primarily a way for banks to apply moral hazard. Good banks to invest optimally and worry about the future, bad banks do not care about the future and maximize the type of moral hazard. How to invest depends on fundamental economic factors. If things are good, then invest optimally because it is not necessary to take excessive risks, and if things are terrible then want to take excessive risks

^{banks are limited by two things. The first is the reputation investors trust a bank with a good reputation - ie a history of making good risk observed - and funding through the unregulated shadow banking system. The other is that the economic fundamentals, investors may see: if the fundamentals are bad and everyone knows the banks to take excessive risks, everyone requires a guarantee deposit (and regulation):}

Why

investors agree to participate in the shadow banking if they understand that the banks are trying to avoid regulation that provides a safety net against the excessive risk-taking? One possible answer is that, indeed, the regulatory capital requirements are unnecessary. However, if this were true, why investors will overshadow the traditional banks when they are concerned about the quality of the collateral?

argued that

concerns reputation

are at the heart of both the growth and the fragility of the shadow banking system. readers of the shadow banking system, while outside investors believe that capital requirements are not necessary to ensure the quality of bank assets such as reputation refers to banks self-discipline behavior. When bad news about the future arises because the reputation reputation concerns collapse becomes less valuable, and investors no longer believe in the self-discipline of banks shift their funds to a less efficient traditional bank, but safer.

As I said, I think this article very nice, but that's partly because I think some people will not. It is based in part on the assumption that bankers can see risk assets higher compared to low, and that regulators can not. It is fairly intuitive - bankers are paid (more!) for optimal investment decisions, regulators are paid (less!) to avoid risk investment decisions - and perhaps empirically supported - but you know, bankers sometimes wrong too. pleasure is also proposing a solution that meets Ordo?ez between the dangers of unregulated banking and regulation ineffective blunt instrument:

another ideal, but unattainable, is to simply give a strong support to all banks, regardless of the reputation ?, subject to repayment of loans [

is the conditional failure is not ] .... This naturally increases the cost of default for all banks and allows for greater self-regulation. This solution has the same effect as an exogenous increase in ? [

ie economic conditions expected

], but how you can finance these subsidies widely available?

• Hahaha that is "the best way to safer banks to give these huge subsidies to survive and obtain grants is more attractive than the risk of failure and losing subsidies." This seems ... a political challenge
Ordo?ez

and have other proposals.




do not know, I stopped there. Hall Bank today -
Find best price for : --Penn----Ordo?ez----Guillermo----NBER----Jamie----Blankfein----Lloyd--