Norges Bank economists examine motivations behind bank regulation
A Norges Bank staff memo, published yesterday, seeks to explain the rationale for regulating banks – starting from that point that the banking system is "inherently unstable" as a result of the mismatch created by the fact banks borrow short term and lend long term.
The memo – Why regulate banks? by Henrik Borchgrevink, Ylva Søvik and Bent Vale – says the inherent instability means banks have an incentive to hold "too risky" portfolios as depositors are unable to effectively monitor their banks
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