This dissertation examines two issues in the theory of banking: the role and efficiency of a
monopoly bank in a spatial economy and, the design of a deposit insurance contract. Chapters
2 and 3 of the thesis present the development and analysis of a simple production economy with
two types of agents. Lenders have an endowment of one unit of a good that may be consumed
or invested in a firm. Firms have access to a project but lack the capital necessary to operate it
and thus are forced to borrow: firms' projects are identically independently distributed crosssectionally.
A simple information asymmetry prevents efficient contracting by lenders and
firms and results in deadweight default costs being incurred.
One way these deadweight costs could be avoided is to establish a "delegated monitor"—a
bank—who collects deposits from the lenders and makes loans to firms. This may result in
an efficiency gain since the firms' projects are Ltd. so, as the bank makes more loans, the
probability that it defaults will be lower than the probability that an individual firm defaults.
This diversification reduces the probability that the bank will fail and the probability that default
costs are incurred. However, I assume that these costs are related to distance. This restricts
the bank's ability to diversify and may induce costly strategic behavior on the part of the bank.
The bank may also lend 'locally' in that it may attract deposits in a region yet not make loans
to firms near those depositors.
The social welfare implications of this bank are examined in Chapter 3. The results show
that the socially optimal outcome is one that restricts the firms' ability to compete with the bank
in the debt market and that credit rationing may also be efficient.
Chapter 4 examines a model where a deposit insurance scheme is designed by a regulator
whose objective is to maximize social welfare. There is a single bank in the economy which can be one of two types: the true type is unknown to the regulator. The results show that the
regulator's efficacy is improved when regular insurance premia are combined with a premia
that are refunded to solvent banks—akin to a deposit insurance fund. / Business, Sauder School of / Graduate
| Identifer | oai:union.ndltd.org:UBC/oai:circle.library.ubc.ca:2429/8782 |
| Date | 05 1900 |
| Creators | Downie, David Craig |
| Source Sets | University of British Columbia |
| Language | English |
| Detected Language | English |
| Type | Text, Thesis/Dissertation |
| Format | 4169653 bytes, application/pdf |
| Rights | For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use. |
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