This involves on site examination as well as an fis

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Unformatted text preview: surveillance itself. Regulators subject all FIs, whether banks, securities firms, or insurance companies, to varying degrees of monitoring and surveillance. This involves on-site examination as well as an FI’s production of accounting statements and reports on a timely basis for off-site evaluation. Just as savers appoint FIs as delegated monitors to evaluate the behavior and actions of ultimate borrowers, society appoints regulators to monitor the behavior and performance of FIs. Finally, note that regulation is not without costs for those regulated. For example, society’s regulators may require FIs to have more equity capital than private owners believe is in their own best interests. Similarly, producing the information requested by regulators is costly for FIs because it involves the time of managers, lawyers, and accountants. Again, the socially optimal amount of information may differ from an FI’s privately optimal amount.14 As noted earlier, the differences between the private benefits to an FI f...
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