<p>Nobody does. The Diamond's classic 1984 model does not include any banking supervision. The model tries to explain why specialized financial intermediaries exists as opposed to having pure peer to peer lending. As such it does not model bank supervision.</p>

CC BY-SA 4.0
2022-10-30T14:53:36.573Z
Thanks for the answer. So why investors delegate the monitoring to the banks if these are not monitored by anyone? They could simply monitor their own investments. 
What I'm sayng is: the problem of monitoring an investment transfers to the problem of monitoring the bank they lend money, how do they solve this?
Roberto Palermo
CC BY-SA 4.0
2022-10-30T15:04:01.193Z
@RobertoPalermo because bank is unlikely to have solvency issues. The unconditional probability that single individual defaults is several orders of magnitude higher than the unconditional probability that bank defaults. Also, bank has profit motive. Also the whole point is that monitoring for bank is cheaper. Of course they could do their own monitoring, but bank can do that cheaper than individual investor via specialization
1muflon1
CC BY-SA 4.0
2022-10-30T13:12:24.223Z
2022-10-30T13:12:24.223Z
1muflon1
<p>In Diamond's model banks are delegated to monitor borrowers for the investors, in this case, who monitors the banks?</p>

<macroeconomics><microeconomics><financial-economics><political-economy>
Who controls banks in Diamond's model?
Roberto Palermo
# Who controls banks in Diamond's model?

(Asked by: username_0 on 2022-10-30)

In Diamond's model banks are delegated to monitor borrowers for the investors, in this case, who monitors the banks?

**Tags:** macroeconomics, microeconomics, financial-economics, political-economy


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## 1 answers

### Answer by username_1 on 2022-10-30. Score: 0 | Accepted answer

Nobody does. The Diamond's classic 1984 model does not include any banking supervision. The model tries to explain why specialized financial intermediaries exists as opposed to having pure peer to peer lending. As such it does not model bank supervision.

> **Comments:**
> **username_0**: Thanks for the answer. So why investors delegate the monitoring to the banks if these are not monitored by anyone? They could simply monitor their own investments.  What I'm sayng is: the problem of monitoring an investment transfers to the problem of monitoring the bank they lend money, how do they solve this?  
> **username_1**: @username_0 because bank is unlikely to have solvency issues. The unconditional probability that single individual defaults is several orders of magnitude higher than the unconditional probability that bank defaults. Also, bank has profit motive. Also the whole point is that monitoring for bank is cheaper. Of course they could do their own monitoring, but bank can do that cheaper than individual investor via specialization  

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