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Long-Term Consequences of Regulatory Arbitrage

From Justin Fox:

Justin Fox: Why Treasury won't explicitly insure all bank debts: This From the FT:

Officials have reviewed the nuclear option of providing an Irish-style sovereign guarantee for all US bank deposits and many or all categories of bank debt as a means of restoring banks’ access to private funds. But they fear that providing formal guarantees only for banks would trigger the implosion of financial firms that compete with them, producing massive disorderly flows of funds across the financial sector. So they hope to rely on implicit guarantees instead.

Great, another implicit guarantee! We know how well the last one of those worked out.

Update: And another thing: If you borrow short and lend long, you're effectively a bank. It's becoming ever less clear to me what justification there is for nonbank borrow-short-lend-long-institutions other than regulatory arbitrage.

Not just "effectively" a bank. You are a bank. Not until the twentieth century did we have organizations that borrowed short and invested long that did not call themselves "banks." The emergence of non-bank banks has always been the result of attempts at regulatory arbitrage.

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