... banks. Banks' funds primarily comes from depositors, not from shareholders (which nowadays deliberately only hold about 4% in relation to total bank assets). This fact undermines the incentive of shareholders to- seriously calculate risk and balance it to potential earnings, naturally leading to moral hazard. Under the limited liability rule shareholders are protected from loosing more than their stake in the bank 2) "Conditionally solvent". (Dale 1984, 54) "The business of banking being . . . a large-scale confidence trick". The Regulation of International Banking because its high financial leverage. Bank loans are nor readily marketable assets and may in case only be sold at a significant discount in the short run. A bank's portfolio is therefore a highly specific asset (to use a term of Oliver Williamson): It will be much more worth to the bank itself than to any other investors. As a consequence, a liquidity squeeze may easily ...

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