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Journal of Financial Services Research

, Volume 2, Issue 3, pp 265–274 | Cite as

Changing incentives facing financial-services regulators

  • Edward J. Kane
Article

Abstract

This article analyzes incentive conflicts that government officials face in operating a deposit insurance fund. Unresolved principal-agent problems exist between fund managers, the politicians to whom they report, and the taxpayers who constitute the enterprise's ultimate stockholders. Managers' ability to conceal implicit losses creates a conflict between maximizing the present value of the fund's future cash flows and protecting their own reputations and future job prospects. These conflicts move regulators through incentive cross-over points that mark off three behavioral regimes: (1) slow but open adaptation to client innovations; (2) denial of reputation-threatening problem situations; and (3) grudging truth-admittance about long-deferred problems.

Keywords

Cash Flow Government Official Open Adaptation Problem Situation Fund Manager 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

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Copyright information

© Kluwer Academic Publishers 1989

Authors and Affiliations

  • Edward J. Kane
    • 1
    • 2
  1. 1.Everett Reese Professor of Banking and Monetary Economics, The Ohio State UniversityColumbusUSA
  2. 2.Visiting Professor, Center for Financial System ResearchArizona State UniversityUSA

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