Basel III Debt deflation Endogenous money Financial regulation Global financial crisis Limited purpose banking Maturity mismatch Narrow money Pigouvian taxes Ring fencing Systemic financial risk Systemic financial externalities Tobin tax
Kiel Institute for World Economy and the ZBW – Leibniz Information Centre for Economics
MILNE, A., 2013. Register, cap and trade: a proposal for containing systemic liquidity risk. Economics: The Open-Access, Open-Assessment E-Journal, 2013-7
A fundamental cause of the global financial crisis was excessive maturity mismatch, notably
shadow banking holdings of sub-prime MBS and other structured credit instruments and crossborder
Euro area interbank lending to the uncompetitive Euro area periphery. The costs of
short term funding do not fully reflect underlying asset risks and this created systemic liquidity
and credit risks. This externality can be controlled through the issue of tradable licenses for
short term funding. This is a simpler and more efficient way of addressing systemic liquidity
risk than the controls on individual institutions proposed by international regulators.
This paper was published as Open Access under the Creative Commons Attribution Licence 3.0.