Three Principles for Market-Based Credit Regulation

摘要

By way of summary, here are three principles that seem to follow from this way of thinking:rn(i) Asset markets, not banking institutions. Market liquidity, not funding liquidity; dealer of last resort, not lender of last resort. This most important first principle reminds that marketrnliquidity is the more relevant concept for a market-based credit system, that market liquidity is normally supplied by dealers, and that the best way to support the dealer system in a crisis may be to support the markets in which they deal by supporting key collateral values.