Controlling the Long-Term Problems of Short-Term Funding

56 Pages Posted: 3 Feb 2017 Last revised: 9 Oct 2018

See all articles by Hal S. Scott

Hal S. Scott

Harvard Law School

Brian Johnson

Harvard Law School

Date Written: October 8, 2018

Abstract

While financial crises can be triggered by a number of causes, runs on short-term liabilities are at the heart of all financial crises with the recent 2007-2009 financial crisis being no exception. Given the unpredictability of crisis triggers and the overwhelming predictability of short-term funding’s role in financial crises, legislative and regulatory responses to the recent financial crisis should focus on controlling the problem of short-term funding in the financial system. However, in addressing the problem of short-term funding in the financial system, it is important to recognize the social benefits afforded by short-term liabilities and not simply the costs. To this end, this Article provides a brief overview of short-term funding in the U.S. financial system, while also highlighting the tradeoff between the costs and benefits of short-term liabilities. The Article proceeds with an analysis of various proposals aimed at addressing the short-term funding issue.

Suggested Citation

Scott, Hal S. and Johnson, Brian, Controlling the Long-Term Problems of Short-Term Funding (October 8, 2018). Harvard Public Law Working Paper No. 17-13, Available at SSRN: https://ssrn.com/abstract=2910217 or http://dx.doi.org/10.2139/ssrn.2910217

Hal S. Scott

Harvard Law School ( email )

1557 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-4590 (Phone)
617-495-9593 (Fax)

Brian Johnson (Contact Author)

Harvard Law School ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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