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BIS Working PapersNo 102
Allocating bank regulatory powers:
lender of last resort, deposit
insurance and supervision
by Charles M Kahn* and Joo A C Santos*
Monetary and Economic Department
August 2001
* Charles M Kahn, Department of Finance, University of Illinois andJooA C Santos, Federal Reserve Bank of New York. The authorsthank Claudio Borio, Kostas Tsatsaronis, Xavier Freixas, Mark Careyand seminar participants at the Bank for International Settlements, theFederal Reserve Bank of New York, and the 2001 Federal ReserveBank of Chicago Bank Structure Conference for useful comments.Much of the work for this project was done while Santos was at theBank for International Settlements. Kahn thanks the Bank forInternational Settlements for financial support to carry it out. The viewsstated herein are those of the authors and are not necessarily those ofthe Bank for International Settlements, the Federal Reserve Bank ofNew York of the Federal Reserve System.
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BIS Working Papers are written by members of the Monetary and Economic Department of the Bankfor International Settlements, and from time to time by other economists, and are published by theBank. The papers are on subjects of topical interest and are technical in character. The viewsexpressed in them are those of their authors and not necessarily the views of the BIS.
Copies of publications are available from:
Bank for International SettlementsInformation, Press & Library Services
CH-4002 Basel, Switzerland
E-mail: publications@bis.org
Fax: (+41 61) 280 9100 and (+41 61) 280 8100
This publication is available on the BIS website (www.bis.org).
Bank for International Settlements 2001. All rights reserved. Brief excerpts may be reproducedor translated provided the source is cited.
ISSN 1020-0959
mailto:publications@bis.orgmailto:publications@bis.org8/13/2019 Allocating Bank Regulatory Powers - Lenders of Last Resort, Deposit Insurance and Supervision - BIS
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Table of Contents
Abstract ........................................................................................................................................... 1
1. Introduction ........................................................................................................................... 2
2. Related literature .................................................................................................................. 6
3. The model ............................................................................................................................. 8
The objectives of regulators ................................................................................................. 10
3.1 Efficient regulation ...................................................................................................... 14
4. A single regulator .................................................................................................................. 15
4.1 Unified regulation ....................................................................................................... 15
4.2 A single regulator and private lending ........................................................................ 17
4.2.1 Insured lenders ................................................................................................ 19
4.2.2 Uninsured lenders ............................................................................................ 20
Interim conclusions ............................................................................................................... 21
5. Multiple regulators ................................................................................................................ 22
5.1 The full information case ............................................................................................ 22
5.1.1 Multiple regulators with specialised powers ..................................................... 23
5.1.2 Multiple regulators: competition in last resort lending ...................................... 25
5.2 The asymmetric information case .............................................................................. 29
Case 1 ........................................................................................................................ 30
Case 2 ........................................................................................................................ 31
6. Final remarks ........................................................................................................................ 32
Appendix: Bargaining under full information ................................................................................... 34
References ...................................................................................................................................... 37
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Recent BIS Working Papers
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