tehom@... (Tom Breton (Tehom)) writes:
>Good job. I'm going to add that to the forum's links, if you have no
>objection.

Fine.

>> He has good suggestions about using market prices (mainly prices of
>> insurance) to improve government approaches to regulation. If banks needed
>> to get a small amount of private insurance in order to get FDIC coverage,
>> the prices of that insurance would be an effective substitute for many of
>> the detailed rules that are currently used to limit the moral hazard of
>> FDIC insurance.
>
>Interesting idea, but seems vulnerable to collusion.

Yes, collusion does complicate the analysis.
Adding a private insurance requirement on top of existing rules would
reduce moral hazard because even with collusion, the cost to the bank
of the insurance plus collusion would reflect the insurors estimate of
the risks.
Replacing many existing rules with a private insurance requirement would
have more complicated effects, because banks might report false insurance
prices to regulators. But it's unclear to me why that would be a bigger
problem than the existing problems of regulatory capture.

--
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Peter McCluskey | When someone is honestly 55% right, that's very good
www.bayesianinvestor.com| Whoever says he's 100% right is a fanatic