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The Money ProblemRethinking Financial Regulation$
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Morgan Ricks

Print publication date: 2016

Print ISBN-13: 9780226330327

Published to Chicago Scholarship Online: September 2016

DOI: 10.7208/chicago/9780226330464.001.0001

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A More Detailed Blueprint

A More Detailed Blueprint

Chapter:
(p.223) Chapter Nine A More Detailed Blueprint
Source:
The Money Problem
Author(s):

Morgan Ricks

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226330464.003.0010

This chapter returns to the institutional blueprint that was described in the Introduction, which represents a particular form of the more generic PPP system from chapter 8. Much of the chapter is concerned with the regulatory challenge of confining money-creation to the licensed banking system. In practice, this would mean establishing and enforcing a generalized prohibition on the issuance of cash equivalents (private money) by nonbanks, subject to de minimis exceptions. This is less radical than it sounds: we already prohibit “deposit” funding in the absence of a special charter. Many financial firms that currently rely heavily on short-term “wholesale” funding, such as the major Wall Street firms, would be precluded from doing so under the proposed design. The problem of “regulatory arbitrage” is discussed in some detail. The chapter then discusses the international dimensions of the institutional design. Ideally, the reformed system would be accompanied by a modification to the Basel Accord (the central international accord on financial regulation). Essentially, the modification would recognize the issuance of monetary instruments as a sovereign prerogative.

Keywords:   private money, wholesale funding, Wall Street, regulatory arbitrage, Basel Accord

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