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Professors Macey and Miller explore the relationship between deposit insurance and the mismatch in the term structure of commercial banks I assets and liabilities. After critiquing the traditional regulatory hypothesis, which posits that banks have incentives long-term assets with short-term liabilities because government-sponsored deposit insurance enhances bank credit and subsidizes short-term liabilities, they use public choice theory to argue that a modified version of the regulatory hypothesis is the best explanation for the mismatch in the term structure of banks I assets and liabilities. Finally, they argue that embracing the regulatory hypothesis does not imply acceptance of the government-sponsored deposit insurance scheme as it exists in the U. S. today.

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