دانلود رایگان مقاله تابع بدهی، بیمه سپرده و نظارت بازار محور بانک

Abstract

We present a model of a bank with endogenous risk choices, where delegated monitoring by an active market in subordinate debt helps in containing the bank's risk shifting in the presence of deposit insurance. In comparison to static ex ante contracting, an active market enables continuous monitoring by subordinate debt to penalise the bank's risk shifting. The model is instrumental in deriving optimal level of subordinate debt required to achieve equilibrium where banks choose risk levels consistent with the first best as envisaged by a social planner. The optimal quantity of subordinate debt further eliminates any risk shifting associated even with risk insensitive premiums.

Conclusion

The paper has analysed the risk shifting incentive of a bank provided with deposit insurance and subordinate debt. While there are individual shortcomings in these instruments, their joint featuring to stabilise banks is deemed complementary in this paper. While deposit insurance can increase welfare for uninformed depositors and helps in averting information based bank runs, active monitoring by subordinate debt can counter moral hazard associated with deposit insurance. The model developed here explores conditions which can lead banks to choose the risk consistent with the risk chosen by a social planner as first best. The model builds on the previous studies, where subordinate debt could not dynamically influence banks by being largely passive after entering into a contract. The model here envisages an active market for subordinate debt which can continuously impart signals to the regulators and other atrisk stakeholders. This provides the necessary discipline for banks so that they may conform to solvency consistent behaviour. Such active monitoring leads to better allocation of risk by a bank and provides endogenous incentives to do so.