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Register, cap and trade: A proposal for containing systemic liquidy risk

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  • Milne, Alistair

Abstract

A fundamental cause of the global financial crisis was excessive maturity mismatch, notably shadow banking holdings of sub-prime MBS and other structured credit instruments and cross-border Euro area interbank lending to the uncompetitive Euro area periphery. The costs of short term funding do not fully reflect underlying asset risks and this created systemic liquidity and credit risks. This externality can be controlled through the issue of tradable licenses for short term funding. This is a simpler and more efficient way of addressing systemic liquidity risk than the controls on individual institutions proposed by international regulators. --

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2013-7
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File URL: http://econstor.eu/bitstream/10419/71407/1/739272217.pdf
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Bibliographic Info

Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 7 (2013)
Issue (Month): 7 ()
Pages: 1-31

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Handle: RePEc:zbw:ifweej:20137

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Related research

Keywords: Basel III; debt deflation; endogenous money; financial regulation; global financial crisis; limited purpose banking; maturity mismatch; narrow money; Pigouvian taxes; ring fencing; systemic financial risk; systemic financial externalities; Tobin tax;

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References

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  1. Enrico Perotti & Javier Suarez, 2011. "A Pigovian Approach to Liquidity Regulation," DNB Working Papers 291, Netherlands Central Bank, Research Department.
  2. Ronnie Phillips, 1992. "Credit Markets and Narrow Banking," Economics Working Paper Archive wp_77, Levy Economics Institute, The.
  3. James Tobin, 1978. "A Proposal for International Monetary Reform," Cowles Foundation Discussion Papers 506, Cowles Foundation for Research in Economics, Yale University.
  4. Sheri M. Markose, 2012. "Systemic Risk from Global Financial Derivatives: A Network Analysis of Contagion and Its Mitigation with Super-Spreader Tax," IMF Working Papers 12/282, International Monetary Fund.
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