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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, Kiel Institute for the World Economy (IfW), vol. 7, pages 1-31.
  • Handle: RePEc:zbw:ifweej:20137
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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2013-7
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    File URL: https://www.econstor.eu/bitstream/10419/71407/1/739272217.pdf
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    References listed on IDEAS

    as
    1. Enrico Perotti & Javier Suarez, 2011. "A Pigovian Approach to Liquidity Regulation," International Journal of Central Banking, International Journal of Central Banking, vol. 7(4), pages 3-41, December.
    2. Ronnie Phillips, 1992. "Credit Markets and Narrow Banking," Economics Working Paper Archive wp_77, Levy Economics Institute.
    3. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
    4. Doluca, Hasan & Klüh, Ulrich & Wagner, Marco & Weder di Mauro, Beatrice, 2010. "Reducing systemic relevance: A proposal," Working Papers 04/2010, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    5. Olivier Jeanne & Anton Korinek, 2010. "Managing Credit Booms and Busts: A Pigouvian Taxation Approach," NBER Working Papers 16377, National Bureau of Economic Research, Inc.
    6. Jeremy C. Stein, 2011. "Monetary Policy as Financial-Stability Regulation," NBER Working Papers 16883, National Bureau of Economic Research, Inc.
    7. 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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    Citations

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    Cited by:

    1. Beker, Victor, 2014. "On the European debt crisis," MPRA Paper 59869, University Library of Munich, Germany.

    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;

    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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