Banking regulation’s impact on industry monopoly and risk

Suggests that banks are different due to plasticity of assets and high debt/equity ratios. For this reason banks need to be regulated. Discusses the most efficient method of regulating banks. Highlights that the move from unlimited liability banking to limited liability banking was inefficient as it led to a more unstable banking system. The unstable banking system required government monitoring of banks. To reduce the costs of monitoring, regulations such as deposit insurance, price and quantity controls and the separation of investment and deposit banking were imposed. Argues that deposit insurance actually has increased banking instability. Suggests that the deregulation process of the last 20 years has led to a more unstable banking system. Argues empirically that bank regulation (apart from deposit insurance) promotes stability rather than creating banking monopolies.