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Banking On the Market: Relying On Depositors to Control Bank Risks

By Helen A. Garten


The idea of market discipline is currently very much in vogue in banking law reform circles. The notion that bank depositors can be encouraged to evaluate the risk posture of banks in the same way that securities investors choose stocks borrows heavily from modern financial theory that has demonstrated that the market for corporate securities is remarkably efficient in reflecting investors\u27 risk preferences. In order to attract deposits, bank management would be forced to limit risk-taking, thereby voluntarily achieving what fifty years of government regulation have failed to produce-a safer banking system

Topics: Law
Publisher: Yale Law School Legal Scholarship Repository
Year: 1986
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