A paper presented at the June 2000 conference quot;Specialization, Diversification, and the Structure of the Financial System: The Impact of Technological Change and Regulatory Reform,quot; sponsored by the Federal Reserve Bank of New York

This paper examines the effect of asymmetric information on the trading of underwriting risk between insurers and reinsurers and how it is mitigated in a context of long-term relationships. It begins by explaining how information problems affect the efficiency of the allocation of risk between...

On-site visits to financial service firms were conducted to review and evaluate their risk management systems. In the insurance sector, this evaluation covered prominent life/health and property-liability insurers, both in the United States and abroad. The information obtained covered both the...

The U.S. traditionally had a radically different view of competition in the financial sector compared to other countries. Distrust of power in the hands of large financial institutions very early led to restrictions on the ability of banks to expand geographically or to diversify into other...

Traditional theories of intermediation are based on transaction costs and asymmetric information. They are designed to account for institutions which take deposits or issue insurance policies and channel funds to firms. However, in recent decades there have been significant changes. Although...

This paper surveys the theory of banking regulation from the general perspective of regulatory theory. Starting by considering the different justifications of financial intermediation, we proceed to identify the market failures that make banking regulation necessary. We then turn to examine how...

This paper analyzes current practices at U.S. banks for quantifying credit in retail portfolios and examines the challenges confronting banks and regulators in developing an internal ratings based (IRB) approach to setting capital requirements for retail exposures. The paper finds that...

This paper derives the optimal size of the financial sector using a general equilibrium framework that is an extension of Holmstrom and Tirole's 1997 paper. We show that the financial sector has a unique optimal size relative to the size of the economy as a whole. Creating and maintaining this...