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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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- Spring '09