Chapter 10
Economic Analysis of Financial Regulation
Chapter 10 stresses the economic way of thinking by conducting an economic analysis using the
adverse selection and moral hazard concepts to show why our regulatory system takes the form it
does and how it can lead to banking crises.
Note that Chapter 8 does not need to be covered in order to teach this chapter. However, if
Chapter 8 is covered in class, Chapter 10 is a nice application of the analysis in that chapter.
Indeed, the instructor might want to stress in class the counterparts in private financial markets
to the methods financial regulators use to cope with adverse selection and moral hazard.