World Economics - Insight , Analysis and Data

World Economics - Insight , Analysis and Data
Narrow Banking
John Kay, World Economics, March 2010
The credit crunch of 2007–8 was the direct and indirect result of losses incurred by major financial services companies in speculative trading in wholesale financial markets. The largest source of systemic risk was within individual financial institutions themselves. The capital requirements regime imposed by the Basel agreements both contributed to the problem and magnified the damage inflicted on the real economy after the problem emerged. The paper argues that regulatory reform should emphasise systemic resilience and robustness, not more detailed behaviour prescription. It favours functional separation of financial services architecture, with particular emphasis on narrow banking – tight restriction of the scope and activities of deposit-taking institutions.

Related thinking:
    Cross-Border Financial Integration in Asia and the Macro-Financial Policy Framework
Philip R. Lane, World Economics, June 2013
    Light at the End of the Tunnel
Elliot Y. Neaman and Shalendra D. Sharma, World Economics, June 2013
    The International Liquidity Crisis of 2008–2009
William A. Allen and Richhild Moessner, World Economics, June 2011


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