THE REGRESSION RESULTS SUPPORT PELTSMAN'S CONCLUSION THAT BANKERS TREAT DEPOSIT INSURANCE AS A SUBSTITUTE FOR BANK CAPITAL, AND SUGGEST THAT REGULATORS HAVE MADE NO ATTEMPT TO REDUCE THIS 'SUBSTITUTION EFFECT'. OTHER FINDINGS SHOW THAT THE LOWER THE RATIO OF ACTUAL CAPITAL TO CAPITAL DESIRED BY THE REGULATORS, THE MORE LIKELY IS THE BANKER TO ADD TO CAPITAL OVER THE NEXT PERIOD TO SATISFY THE DEMANDS OF THE BANK EXAMINER. THE EFFECT OF REGULATORY DEMANDS IS NONLINEAR IN NATURE, AND ITS MAGNITUDE IS QUITE LARGE. THESE RESULTS INDICATE THAT THE LEVEL OF BANK CAPITAL IS NOW GREATER THAN IT WOULD BE IN THE ABSENCE OF BANK CAPITAL REGULATION, AND THE CONSOLIDATION OF THE EXAMINATION FUNCTION INTO A SINGLE AGENCY WOULD NOT APPRECIABLY CHANGE THE IMPACT OF SUCH REGULATION. APPENDIX. REFERENCES.