We analyze a general equilibrium model in which there is both adverse selection of, and moral hazard by, banks. The regulator can screen banks prior to giving them a licence, audit them ex post to learn the success probability of their projects, and impose capital adequacy requirements. Capital...

We study a version of the standard Kyle (85) model with endogenous information acquisition and we find that equilibria exist with free entry in which speculators make positive profits. Moreover, these equilibria are robust.

The credit derivatives market provides a liquid but opaque forum for secondary market trading of banking assets. I show that, when entrepreneurs rely on the certification value of bank debt to obtain cheap bond market finance, the existence of a credit derivatives market may cause them to issue...

In human capital intensive industries where it is difficult to contract upon the training effort of skilled agents a socially suboptimal level of training may occur. We show how partnership organisations can overcome this problem by tying human and financial capital. Partnerships are opaque so...

The microstructure literature models the mechanisms through which fundamental information is incorporated into market prices. This paper extends previous models by endogenising information production and analysing incentives for costly information production. In contrast to the existing...

Debating the minutiae of insurance regulation without a clear understanding of why insurance companies are regulated is futile. In this article I discuss the economic rationale for insurance business regulation and conclude that the appropriate role of the regulator is to enforce contracts which...

I analyse a model in which it is socially optimal for banks to manage depositor funds but in which concerns about fraud discourage depositing and justify regulation. The regulator screens bankers and decides the level of charter value which they will receive as incentive to prevent fraud. She...

This article is a modified version of a paper given on 6 September 2001 at a seminar on financial conglomerate regulation at Hoofdorp, The Netherlands, organized by the Council of Financial Supervisors (RFT), the Netherlands Bankers' Association (NVB), and the Dutch Association of Insurers...

The financial crisis of 2007–9 resulted in state intervention in financial markets around the world, and the state became a major shareholder in many banks. While state bailouts were politically sensitive, policy-makers had little alternative but to supply funds to financial institutions that...