We analyse a general equilibrium model in which there is both adverse selection of and moral hazard by banks. The regulator has several tools at her disposal to combat these problems. She can audit banks to learn their type prior to giving them a licence, she can audit them ex post to learn the...

We model the interaction between two economies where banks exhibit both adverse selection and moral hazard and bank regulators try to resolve these problems. We find that liberalising bank capital flows between economies reduces total welfare by reducing the average size and efficiency of the...

Deposit insurance schemes are becoming increasingly popular around the world and yet there is little understanding of how they should be designed and what their consequences are. In this paper we provide a new rationale for the provision of deposit insurance. We analyse a model in which agents...

We analyse a general equilibrium model in which there is both adverse selection of and moral hazard by banks. The regulator has two tools at her disposal to combat these problems - she can audit banks to learn their type prior to giving them a licence, and she can impose capital adequacy...