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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.

Suggested Citation

  • Milne, Alistair, 2013. "Register, cap and trade: A proposal for containing systemic liquidy risk," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 7, pages 1-31.
    • Handle: RePEc:zbw:ifweej:20137
    DOI: 10.5018/economics-ejournal.ja.2013-7
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    References listed on IDEAS

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    Cited by:

    1. Victor A. Beker, 2016. "The European Debt Crisis," Financial and Monetary Policy Studies, in: Modern Financial Crises, edition 127, chapter 0, pages 135-160, Springer.

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    More about this item

    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;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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