The government should rely more on the market to regulate large banks, according to Mark J. Flannery, a finance professor at the University of Florida.

Certificates of deposit, stock prices, and bond ratings all adjust quickly to the release of new information about a bank's health, he finds.

"Market assessments of bank condition are generally rational and exhibit a timeliness that compares well with supervisory assessments," he writes.

But he says the market would do an even better job if it had access to the regulators' evaluations of each bank's health. Also, he says, examiners could improve their oversight if they incorporate more market data into their analyses.

For a copy of "Using Market Information in Prudential Bank Supervision: A Review of the U.S. Empirical Evidence," call 352-392-3184. The paper will be published in the August edition of the Journal of Money, Credit and Banking.

Smart cards and other new payment forms will fail unless producers limit fraud and abuse, warns William Roberds, a research officer at the Federal Reserve Bank of Atlanta.

Businesses have few qualms about accepting cash, checks, and credit cards because these are rarely counterfeited, he said. But stored value cards and other new payment forms are more susceptible to fraud because their value is stored electronically, he said. For instance, companies in Japan lost $600 million when criminals figured out how to clone stored value cards.

"Incentives for fraud increase when transactions are made in large amounts, when they are made anonymously or at the point of sale, when claims cannot be verified at the point of sale, and when issuers of payment claims bear the costs of fraudulent transactions," he finds.

For a copy of "The Impact of Fraud on New Methods of Retail Payment," call 404-521-8020 or visit www.frbatlanta.org.

The old adage that electing a Republican president ensures economic growth is wrong, according to James R. Booth of Arizona State University and Lena Chua Booth of the American Graduate School of International Management.

The two find that the economy grew slightly faster during Democratic administrations than during Republican ones, though the difference was not statistically significant.

"There is no support for returns being different under one political party versus the other," they write.

For a copy of "Does the Stock Market Prefer Republican Administrations?" call 415-974-2163 or visit www.sf.frb.org.

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