FIN-03-034 |
NYU Stern School of Business |
October 2003
Yoram Landskroner and Jacob Paroush
ABSTRACT
In recent years market discipline attracted interest as a
mechanism to augment or to partially replace government oversight
(discipline) of the financial sector, specifically depository
institutions. Despite the abundance of research, mostly empirical
studies, in the area no formal model has been presented to analyze
the different aspects of the issue. This paper attempts to fill
this gap. In our model we incorporate the characteristics of the
regulatory structure and market discipline and examine the effects
of several parameters on the optimal decisions of the bank. For
example we consider the effects of changes in risk, deposit
insurance coverage, and degree of market discipline. In most cases
our results are compatible with recent empirical findings.
Yoram Landskroner
Institution: Stern School of Business, New York University
Phone: (212) 998-0913
Fax: (212) 995-4233
Email: ylandskr@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~ylandskr
Jacob Paroush
Institution: Economics department, Bar-Illan University and Ashkelon Academic College
Email: parousj@mail.biu.ac.il
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