Thursday, October 13, 2022

Initial Comments On Sissoko Paper: Money Markets — Brian Romanchuk

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: 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.

In this article, I just want to respond to the discussion of money market funds from a technical standpoint, and will not address what Sissoko presents as the major concerns — a movement away from market-based finance. Even if we grant the argument that there should be a movement away from market-based finance, we need to look at how that is supposed to be implemented.…

No comments: