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Pastimes : Ask Mohan about the Market

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To: Sam Citron who wrote (8393)	11/18/1997 12:13:00 AM
From: Rational	Read Replies (1) of 18056

Sam: You assume that BOJ will have to bail out failing banks. Why? BOJ has already announced to do so, like the US policy for banks too big to fail: to avoid systemic risk, system-wide panic, etc. There are arguments for and against such policies. But, such banks (when rescued) come under deeper regulatory scrutiny. Wont it send exactly the wrong message and give people the incentive to place deposits in risky banks because they may offer a bit higher interest rate? Regulators (especially in US) have become smarter to impose restrictions on interest rates paid by such banks. If a bank pays larger rates, it comes under deeper scrutiny. Sankar

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