Allocating Lending of Last Resort and Supervision in the Euro Area
The Maastricht Treaty created the European System of Central Banks and the European Central Bank to head this system. The Treaty entrusted the European Central Bank with the responsibility for monetary policy, but it did not give this institution supervisory powers or an explicit mandate for providing emergency liquidity support to individual banks. National authorities remained responsible for financial stability. As a result, in the euro area some bank regulatory functions are centralized, while others are allocated to not one, but multiple, competing national regulators. Previous researchers have discussed the potential implications of this institutional allocation of regulation on the financial stability of the region. In this chapter, we investigate instead the potential efficiency implications. We focus on the consequences of the allocation of the lender of last resort and supervisory functions for the degree of forbearance in closing distressed banks and for the level of diligence in bank supervision. We conclude that the integration of banking markets without the integration of regulatory functions increases forbearance and decreases supervision. Centralizing regulatory functions will tend to reverse this decline. If only one of the two functions is centralized, then it will be more effective to centralize the supervisory function.
Does Financial Integration Make Banks Act More Prudential? Regulation, Foreign Owned Banks, and the Lender-of-Last Resort
We analyze whether financial integration will lead to lower national regulation of domestic banking activities. In our model, banks' efforts and public regulation can lower the probability of bankruptcy. We contrast the national case with an integrated banking market and find that banks will exert greater effort to monitor their foreign activities. Thus, financial integration may increase prudential behavior and regulation. We also discuss incentives for banks to organize their foreign holdings in branches or subsidiaries. We show that the absence of a common lender of last resort can reduce the probability of financial crisis.
An Introduction to Property Theory: Utilitarian Property Theories
As a leading property law casebook puts it, “[u]tilitarian theory is, without doubt, the dominant view of property today, at least among lawyers.” This is certainly true, but the story is also significantly more complicated. Although utilitarian analysis provides tremendous insight into the institution of property, it raises a number of important questions when treated as a comprehensive theory of property. Moreover, the term utilitarian masks a great deal of intellectual and methodological diversity. Rather than a single utilitarian theory, it is more appropriate to speak of a number of utilitarian (or even utilitarian-influenced) property theories . For our purposes, these utilitarian-influenced theories include many contemporary theories that refer to themselves as economic or welfarist . In this chapter, we will explore the broad outlines of these theories, focusing on their points of overlap and also on key areas of disagreement. A BRIEF INTRODUCTION TO UTILITARIANISM Utilitarianism is a consequentialist moral philosophy, that is, one that judges the rightness and wrongness of actions or rules or institutions by the goodness and badness of the consequences they bring about. Utilitarianism assesses the goodness or badness of consequences in terms of their tendency to maximize utility or welfare. Bernard Williams has observed that “[t]he fathers of utilitarianism thought of it principally as a system of social and political decision,” as opposed to “a system of personal morality.” As Williams correctly notes, it is sometimes hard to keep these two domains apart. Nevertheless, it is plainly as a theory of social choice that utilitarianism has been deployed in the context of property theory.