tag:blogger.com,1999:blog-2499715909956774229.post7409327942385491068..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: Banking RegulationStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2499715909956774229.post-83812051441967724682011-01-13T17:56:31.476-08:002011-01-13T17:56:31.476-08:00I agree with point one, but I don't think this...I agree with point one, but I don't think this actually provides a case against a 100% reserve requirement.<br /><br />Individuals put money in banks for a variety of reasons, ie banking services (reduction in transaction costs, etc), interest payments, etc. Currently, banks generally provide both types of services.<br /><br />I think of a 100% reserve requirement as a policy which splits the "banking sector" into two parts: one which provides banking services, and another which channels savings to investment by offering positive expected returns to savings.<br /><br />In a perfect world, the right amount of deposits are intermediated (I'm thinking of a costly state verification sort of world) (Also, one might argue that an inefficiently high amount of reserves are intermediated under current policy). People put their deposits in both types of accounts because they value the services provided by each.<br /><br />This is all obviously very rough, but I don't think point one has much bite for the reasons cobbled together here. I am, however, sympathetic to point two.Daniel Lawverhttp://sites.google.com/a/asu.edu/daniel-lawver/noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-43125076623276897262011-01-12T14:18:36.480-08:002011-01-12T14:18:36.480-08:001. A standard problem with the 100% reserve requir...1. A standard problem with the 100% reserve requirement is that it eliminates any useful intermediation that was being done with the insured deposits.<br />2. How do you commit to letting a large financial institution fail? That's a big problem. In Canada, they solve the too-big-to-fail problem by regulating the large financial institutions in such a way that they will never fail (apparently). The key question is whether that is better than a system where there are occasional crises and some institutions are going to get bailouts from time to time.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-21825752945951206982011-01-12T08:41:14.011-08:002011-01-12T08:41:14.011-08:00Hello.
What do you think about imposing 100% rese...Hello.<br /><br />What do you think about imposing 100% reserve requirements on institutions which receive FDIC backing, and therefore would earn profits on bank fees and interest from the Fed?<br /><br />Other financial intermediaries would not receive implicit backing from the government, and would not have strong incentives to engage in overly risky behavior. One problem, however, is that the government has to commit to letting these institutions fail.<br /><br />Does this seem reasonable?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-43736819630608257222011-01-11T09:20:43.654-08:002011-01-11T09:20:43.654-08:00Ettore,
We could get rid of reserve requirements ...Ettore,<br /><br />We could get rid of reserve requirements and the remaining prohibition on paying interest on demand deposits, without doing any harm. However, it's not clear that these are seriously binding constraints any more. If there are any constraints on banks that keep them from doing what shadow banks do, or vice-versa, those should be removed. What I have in mind is a universal financial intermediary regulatory structure, with a comprehensive set of capital requirements and other restrictions on risk-taking. Within that regulatory structure, individual intermediaries can do what they want. If you want to look like a traditional commercial bank, or a traditional money market mutual fund, or a traditional shadow bank, fine.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-13337238455851739022011-01-11T03:26:04.792-08:002011-01-11T03:26:04.792-08:00I strongly agree with your conclusion: the shadow ...I strongly agree with your conclusion: the shadow banking system exists because investors look for services that the traditional banking sector does not (or cannot) provide. Regulate it, and investors will just look for something new (and probably more dangerous?).<br /><br />The real challenge is to give incentives to (or to remove distortions on) the traditional banking sector, so that they can provide new services and "remove ground" beneath shadow banking sector's feet. Is that similar to what you define as "big bank"?Ettore Panettihttp://people.su.se/~epane/noreply@blogger.com