Learning to Think About Shadow Banking

In retrospect, it is easy to see why most observers didn’t see the crisis coming.  The crisis was a stress test of shadow banking, “money market funding of capital market lending”.  In most universities, including mine, monetary economics and financial economics are separate fields with their own specialized language and faculty, and the regulatory apparatus is similarly bifurcated.  But the

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The Fuss about Market Liquidity

The recently released PwC “Global Financial Markets Liquidity Study”, sounds a warning.  Financial regulation, while perhaps well-intentioned, has gone too far.  Banks may be safer but markets are more fragile. At the moment, this fragility is masked by the massive liquidity operations of world central banks.  But it will soon be revealed as, led by the Fed, central banks attempt to exit.

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Regulatory Silos, and also Intellectual Silos, hold back financial reform

A month ago, the Volcker Alliance issued a report intended to address a central issue that had been purposely left to one side in the Dodd-Frank reform legislation, namely the inadequacy of the regulatory system that will be tasked with implementing any future financial reform.  Titled “Reshaping the Financial Regulatory System:  Long Delayed, Now Crucial”, the report got respectful notice

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Financial Reform, Part One: TBTF

The word has come down, “Never again!” On October 14, 2008, the US Treasury announced a plan to recapitalize the US banking system, to the tune of $250 billion, starting with the nine biggest banks who were forced to take the money, whether they wanted to or not.  The government got its (our) money back, but that’s not what matters.

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Home (and solvency) bias at the Fed

At the INET conference in DC yesterday, Janet Yellen and Christine Lagarde both gave brief statements, and then they asked each other questions, back and forth, until the moderator called time. No surprises in any of it, perhaps, but still a useful check on the current thinking of the leaders of the Fed and the IMF respectively, and as such

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