John Cochrane has a great column inwards today's Wall Street Journal on how to practise a improve banking system. He says that nosotros should focus on the nature of depository fiscal establishment liabilities (demand deposits, inwards particular) rather than on the riskiness of depository fiscal establishment assets.
Back inwards 1993, inwards my discussant's comments on an mankiw.pdf">Akerlof-Romer article on the savings together with loan crisis, I made a like argument. Here is an excerpt of what I thus wrote:
Traditional banks are peculiar institutions. Traditional banks own got depositors who desire short-term, liquid, riskless assets. Yet these deposits are backed past times long-term, illiquid, risky loans. This incongruity is fundamental. As nosotros own got seen, it cannot hold out easily fixed past times a authorities policy such every bit deposit insurance.
There is, however, a simple, market-based solution: mutual funds. Individuals who desire genuinely riskless assets tin forcefulness out invest inwards mutual funds that concur exclusively Treasury bills. Those who are willing to undertake greater gamble tin forcefulness out invest inwards mutual funds that concur privately issued CDs, bonds, or equities. Long-term, illiquid loans could hold out made past times finance companies, which would enhance funds past times issuing equity together with bonds. In the footing I am describing, all household assets would hold out perfectly liquid. Preventing depository fiscal establishment runs---he master copy motivation for deposit insurance--would hold out unnecessary, because changes inwards need for diverse assets would hold out reflected inwards marketplace prices.
In essence, the organisation nosotros own got immediately is 1 inwards which finance companies are themselves financed amongst need deposits. Yet these finance companies concur assets--long-term depository fiscal establishment loans--that are risky together with illiquid, much inwards the same means that fixed upper-case missive of the alphabet is risky together with liquid. Imagine that the automobile manufacture financed itself amongst need deposits. Undoubtedly, self-fulfilling "runs" on GM together with Ford would hold out common, together with the automobile manufacture would hold out highly unstable. Indeed, the automobile manufacture would in all likelihood hold out a major source of macroeconomic instability. The best solution, of course, would non hold out deposit insurance together with rule of the automobile industry, merely a alter inwards the means the manufacture financed itself. Sumber https://gregmankiw.blogspot.com/
Back inwards 1993, inwards my discussant's comments on an mankiw.pdf">Akerlof-Romer article on the savings together with loan crisis, I made a like argument. Here is an excerpt of what I thus wrote:
Traditional banks are peculiar institutions. Traditional banks own got depositors who desire short-term, liquid, riskless assets. Yet these deposits are backed past times long-term, illiquid, risky loans. This incongruity is fundamental. As nosotros own got seen, it cannot hold out easily fixed past times a authorities policy such every bit deposit insurance.
There is, however, a simple, market-based solution: mutual funds. Individuals who desire genuinely riskless assets tin forcefulness out invest inwards mutual funds that concur exclusively Treasury bills. Those who are willing to undertake greater gamble tin forcefulness out invest inwards mutual funds that concur privately issued CDs, bonds, or equities. Long-term, illiquid loans could hold out made past times finance companies, which would enhance funds past times issuing equity together with bonds. In the footing I am describing, all household assets would hold out perfectly liquid. Preventing depository fiscal establishment runs---he master copy motivation for deposit insurance--would hold out unnecessary, because changes inwards need for diverse assets would hold out reflected inwards marketplace prices.
In essence, the organisation nosotros own got immediately is 1 inwards which finance companies are themselves financed amongst need deposits. Yet these finance companies concur assets--long-term depository fiscal establishment loans--that are risky together with illiquid, much inwards the same means that fixed upper-case missive of the alphabet is risky together with liquid. Imagine that the automobile manufacture financed itself amongst need deposits. Undoubtedly, self-fulfilling "runs" on GM together with Ford would hold out common, together with the automobile manufacture would hold out highly unstable. Indeed, the automobile manufacture would in all likelihood hold out a major source of macroeconomic instability. The best solution, of course, would non hold out deposit insurance together with rule of the automobile industry, merely a alter inwards the means the manufacture financed itself. Sumber https://gregmankiw.blogspot.com/
