Raghuram Rajan: evaluation

Transcript context

…But say if there’s deposit insurance, especially in the US, where resolution occurs quite quickly, why should that discipline be much of a force? If I have a hundred thousand dollars in a bank and they screw up, I still have my money. I don’t really have to wait. Why should the bank have some kind of comparative advantage? Well, you will not do anything because you’re insured, and deposit insurance has been very successful in putting the small depositor to rest, their anxieties to rest. What closes the bank is when the large guys — the guys who have 5, 10 million in the bank, who are monitoring the bank on a daily basis because they operate in the commercial paper markets, the hedge funds, the big mutual funds — they’re the guys who start taking the money out quickly, as soon as there is a whiff of trouble about the bank. I think they perform an enormously important role, which is why, as you said, the bank gets shut down in a day or two, but that preserves the money. Lehman, when it shut down, was essentially — when you looked at the overall value — it was pretty close to the value owed to the depositors. It was shut down before it lost even that money. In the United States, are current financial and lending connections too relationship based? Again, going back to your earlier work.…

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