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Three Principles for Market-Based Credit Regulation

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  • Perry Mehrling

Abstract

A key lesson of the financial crisis 2007-09 is that the Bagehot Rule, "lend freely but at a high rate," needs to be updated for the emerging market-based credit system. A modern rule is suggested: Markets, not Banks; Outside spread, not Inside spread; Core, not Periphery.

Suggested Citation

  • Perry Mehrling, 2012. "Three Principles for Market-Based Credit Regulation," American Economic Review, American Economic Association, vol. 102(3), pages 107-112, May.
    • Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:107-12
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.107
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    References listed on IDEAS

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    1. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    2. Hicks, John, 2017. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198796237.
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    Cited by:

    1. Schclarek Curutchet Alfredo & Jiajun Xu, 2023. "Local Currency Loans in the Global Development Finance Architecture," Asociación Argentina de Economía Política: Working Papers 4692, Asociación Argentina de Economía Política.
    2. Saeidinezhad, Elham & Hovhannisyan, Tatev, 2019. "Can the Hybridity of Law and Finance Save Central Banking in a Zero-Lower Bound Recession? A Money and Legal View," MPRA Paper 97719, University Library of Munich, Germany.
    3. Alfredo Schclarek & Jiajun Xu & Jianye Yan, 2023. "The maturity‐lengthening role of national development banks," International Review of Finance, International Review of Finance Ltd., vol. 23(1), pages 130-157, March.
    4. Krug, Sebastian & Wohltmann, Hans-Werner, 2016. "Shadow banking, financial regulation and animal spirits: An ACE approach," Economics Working Papers 2016-08, Christian-Albrechts-University of Kiel, Department of Economics.
    5. A. Mantovi & G. Tagliavini, 2017. "Liquidity cognition and limits of arbitrage," Economics Department Working Papers 2017-EP01, Department of Economics, Parma University (Italy).
    6. Servaas Storm, 2018. "Financialization and Economic Development: A Debate on the Social Efficiency of Modern Finance," Development and Change, International Institute of Social Studies, vol. 49(2), pages 302-329, March.
    7. Schclarek, Alfredo & Xu, Jiajun & Amuchastegui, Pedro, 2022. "Panda bond financing of the Belt and Road Initiative: An analysis of monetary mechanisms and financial risks," Research in International Business and Finance, Elsevier, vol. 61(C).
    8. Krug, Sebastian, 2018. "The interaction between monetary and macroprudential policy: Should central banks 'lean against the wind' to foster macro-financial stability?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-69.
    9. Gökçer Özgür, 2021. "Shadow banking and financial intermediation," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 731-757, November.
    10. A. Mantovi, 2019. "Information insensitivity, collateral flows and the logic of financial stability," Economics Department Working Papers 2019-EP01, Department of Economics, Parma University (Italy).
    11. Daniela Gabor, 2014. "Learning from Japan: The European Central Bank and the European Sovereign Debt Crisis," Review of Political Economy, Taylor & Francis Journals, vol. 26(2), pages 190-209, April.
    12. Alfredo SCHCLAREK & Jiajun XU, 2020. "Exchange rate and balance of payment risks in the global development finance architecture," Working Paper 15b03057-1f7f-44dc-93fa-5, Agence française de développement.
    13. Krug, Sebastian, 2015. "The interaction between monetary and macroprudential policy: Should central banks "lean against the wind" to foster macrofinancial stability?," Economics Working Papers 2015-08, Christian-Albrechts-University of Kiel, Department of Economics.
    14. Daniela Gabor, 2018. "Goodbye (Chinese) Shadow Banking, Hello Market†based Finance," Development and Change, International Institute of Social Studies, vol. 49(2), pages 394-419, March.
    15. Daniela Gabor & Cornel Ban, 2016. "Banking on Bonds: The New Links Between States and Markets," Journal of Common Market Studies, Wiley Blackwell, vol. 54(3), pages 617-635, May.
    16. Alfredo Schclarek & Jiajun Xu, 2021. "Panda Bond Financing of the Belt & Road Initiative: An Analysis of Monetary Mechanisms and Financial Risks," Asociación Argentina de Economía Política: Working Papers 4519, Asociación Argentina de Economía Política.
    17. Staffa, Ruben Marek, 2023. "Macroeconomic effects from sovereign risk vs. Knightian uncertainty," IWH Discussion Papers 27/2023, Halle Institute for Economic Research (IWH).
    18. Andrea Mantovi, 2018. "The monetary dimension of arbitrage. A brief note," Working Paper series 18-27, Rimini Centre for Economic Analysis, revised Oct 2018.
    19. Jakob Vestergaard & Daniela Gabor, 2021. "Central Banks Caught Between Market Liquidity and Fiscal Disciplining: A Money View Perspective on Collateral Policy," Working Papers Series inetwp170, Institute for New Economic Thinking.
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    21. Schclarek, Alfredo & Xu, Jiajun, 2022. "Exchange rate and balance of payment crisis risks in the global development finance architecture," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    22. Jalal Qanas & Malcom Sawyer, 2019. "Macroeconomics and natural rates: some reflections on Pasinetti’s fair rate of interest," Bulletin of Political Economy, Bulletin of Political Economy, vol. 13(2), pages 189-208, December.
    23. Becker, Christoph, 2021. "The liquidity mechanics of dealer banks in the market-based credit system," Economic Modelling, Elsevier, vol. 105(C).

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