Reforming the Short-Term Funding Markets

Abstract:     
Traditionally, governments have established licensing requirements for the issuance of important classes of monetary instruments — namely, deposit obligations and bank notes. Their issuance has been a legal privilege. This article proposes a similar legal regime for other short-term IOUs, which present similar problems. The approach would be functional rather than formalistic. The article sketches a prototype of such a regulatory system. In addition, the article offers a critical analysis of current reform initiatives pertaining to the short-term funding markets. It finds reasons to doubt that they will be effective. It proposes an alternative, coordinated regulatory approach that could be implemented under current U.S. law.

Number of Pages in PDF File: 34

Keywords: Money, banking, short-term funding, money markets, shadow banking, Dodd-Frank Act

JEL Classification: E42, K23

working papers series