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Three Principles for Market-Based Credit Regulation

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  • Perry Mehrling

Abstract

A key lesson of the financial crisis 2007-09 is that the Bagehot Rule, "lend freely but at a high rate," needs to be updated for the emerging market-based credit system. A modern rule is suggested: Markets, not Banks; Outside spread, not Inside spread; Core, not Periphery.

Suggested Citation

  • Perry Mehrling, 2012. "Three Principles for Market-Based Credit Regulation," American Economic Review, American Economic Association, vol. 102(3), pages 107-112, May.
    • Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:107-12
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    References listed on IDEAS

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    1. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    2. H. G. Moulton, 1918. "Commercial Banking and Capital Formation: I," Journal of Political Economy, University of Chicago Press, vol. 26(5), pages 484-484.
    3. Hicks, John, 2017. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198796237.
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    Cited by:

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    2. Krug, Sebastian & Wohltmann, Hans-Werner, 2016. "Shadow banking, financial regulation and animal spirits: An ACE approach," Economics Working Papers 2016-08, Christian-Albrechts-University of Kiel, Department of Economics.
    3. A. Mantovi & G. Tagliavini, 2017. "Liquidity cognition and limits of arbitrage," Economics Department Working Papers 2017-EP01, Department of Economics, Parma University (Italy).
    4. Servaas Storm, 2018. "Financialization and Economic Development: A Debate on the Social Efficiency of Modern Finance," Development and Change, International Institute of Social Studies, vol. 49(2), pages 302-329, March.
    5. Krug, Sebastian, 2018. "The interaction between monetary and macroprudential policy: Should central banks 'lean against the wind' to foster macro-financial stability?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-69.
    6. A. Mantovi, 2019. "Information insensitivity, collateral flows and the logic of financial stability," Economics Department Working Papers 2019-EP01, Department of Economics, Parma University (Italy).
    7. Daniela Gabor, 2018. "Goodbye (Chinese) Shadow Banking, Hello Market†based Finance," Development and Change, International Institute of Social Studies, vol. 49(2), pages 394-419, March.
    8. Alfredo Schclarek & Jiajun Xu & Jianye Yan, 2023. "The maturity‐lengthening role of national development banks," International Review of Finance, International Review of Finance Ltd., vol. 23(1), pages 130-157, March.
    9. Daniela Gabor & Cornel Ban, 2016. "Banking on Bonds: The New Links Between States and Markets," Journal of Common Market Studies, Wiley Blackwell, vol. 54(3), pages 617-635, May.
    10. Staffa, Ruben Marek, 2023. "Macroeconomic effects from sovereign risk vs. Knightian uncertainty," IWH Discussion Papers 27/2023, Halle Institute for Economic Research (IWH).
    11. repec:avg:wpaper:en11707 is not listed on IDEAS
    12. Becker, Christoph, 2021. "The liquidity mechanics of dealer banks in the market-based credit system," Economic Modelling, Elsevier, vol. 105(C).
    13. Saeidinezhad, Elham & Hovhannisyan, Tatev, 2019. "Can the Hybridity of Law and Finance Save Central Banking in a Zero-Lower Bound Recession? A Money and Legal View," MPRA Paper 97719, University Library of Munich, Germany.
    14. Schclarek, Alfredo & Xu, Jiajun & Amuchastegui, Pedro, 2022. "Panda bond financing of the Belt and Road Initiative: An analysis of monetary mechanisms and financial risks," Research in International Business and Finance, Elsevier, vol. 61(C).
    15. Gökçer Özgür, 2021. "Shadow banking and financial intermediation," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 731-757, November.
    16. Daniela Gabor, 2014. "Learning from Japan: The European Central Bank and the European Sovereign Debt Crisis," Review of Political Economy, Taylor & Francis Journals, vol. 26(2), pages 190-209, April.
    17. Alfredo SCHCLAREK & Jiajun XU, 2020. "Exchange rate and balance of payment risks in the global development finance architecture," Working Paper 15b03057-1f7f-44dc-93fa-5, Agence française de développement.
    18. Krug, Sebastian, 2015. "The interaction between monetary and macroprudential policy: Should central banks "lean against the wind" to foster macrofinancial stability?," Economics Working Papers 2015-08, Christian-Albrechts-University of Kiel, Department of Economics.
    19. Alfredo Schclarek & Jiajun Xu, 2021. "Panda Bond Financing of the Belt & Road Initiative: An Analysis of Monetary Mechanisms and Financial Risks," Asociación Argentina de Economía Política: Working Papers 4519, Asociación Argentina de Economía Política.
    20. Andrea Mantovi, 2018. "The monetary dimension of arbitrage. A brief note," Working Paper series 18-27, Rimini Centre for Economic Analysis, revised Oct 2018.
    21. Jakob Vestergaard & Daniela Gabor, 2021. "Central Banks Caught Between Market Liquidity and Fiscal Disciplining: A Money View Perspective on Collateral Policy," Working Papers Series inetwp170, Institute for New Economic Thinking.
    22. Schclarek, Alfredo & Xu, Jiajun, 2022. "Exchange rate and balance of payment crisis risks in the global development finance architecture," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    23. Jalal Qanas & Malcom Sawyer, 2019. "Macroeconomics and natural rates: some reflections on Pasinetti’s fair rate of interest," Bulletin of Political Economy, Bulletin of Political Economy, vol. 13(2), pages 189-208, December.

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