I ran across Carolyn Sissoko’s working paper “Financial dominance: why the ‘market maker of last resort’ is a bad idea and what to do about it” (link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4240857). Although I agree that non-bank finance (“market-based finance”) is going to be the source of financial instability under current institutional arrangements in the developed countries, I am not too sympathetic with her framing of the issues. Private sector balance sheets have been tilted towards non-bank finance as a result of institutional and demographic trends, and the traditional banking system has been de-risked courtesy of banks relying on tools provided by non-bank finance.
"Banks do want to spend their time to competing banks, nor would a halfway competent bank want to depend upon getting financing from its competitors on demand."
Something is wrong with the structure of that sentence.
There's a further option with central banks providing settlement funds. The central bank holds a debenture over the regulated entity and provides an overdraft against all the assets held by the bank. After the central bank has decided that the assets the bank holds are good, so they should put their money where their mouth is. Exempt positive central bank holdings from capital and liquidity ratios and you're all good.
Which is pretty much what Warren puts forward IIRC
Yes, but you still get the central bank lending to selected entities at a below market rate, which is going to get the bank conspiracy nutters mad. And it creates a contingent liability for the central government, which defeats the expressed wish of not having the central bank bail out the private sector.
"Banks do want to spend their time to competing banks, nor would a halfway competent bank want to depend upon getting financing from its competitors on demand."
Something is wrong with the structure of that sentence.
Oops, that was mangled. “Do not want to spend their time funding competing banks”
There's a further option with central banks providing settlement funds. The central bank holds a debenture over the regulated entity and provides an overdraft against all the assets held by the bank. After the central bank has decided that the assets the bank holds are good, so they should put their money where their mouth is. Exempt positive central bank holdings from capital and liquidity ratios and you're all good.
Which is pretty much what Warren puts forward IIRC
Yes, but you still get the central bank lending to selected entities at a below market rate, which is going to get the bank conspiracy nutters mad. And it creates a contingent liability for the central government, which defeats the expressed wish of not having the central bank bail out the private sector.