tag:blogger.com,1999:blog-2277215496195926573.post3204079881595474558..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: Regulate the asset or liability side of banks’ balance sheets?Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2277215496195926573.post-62388477516656684392015-12-05T22:45:03.217-08:002015-12-05T22:45:03.217-08:00I suspect you were confused by the weird proposals...I suspect you were confused by the weird proposals of Positive Money when you first wrote this post.<br />Positive Money's proposals would indeed regulate bank LIABILITIES (deposits), as you wrote in this post. <br /><br />PM propose regulations to make all bank deposits become liabilities of the Central Bank. Private banks would then be merely be agents of the CB in administering the payments system, so they would not need to have any assets to back up deposits at the CB, and there would be no need for any regulation of their assets to ensure the stability of the payments system.<br /><br />In sharp contrast to PM, with Full Reserve banking there would be regulations regarding bank ASSETS to ensure that bank deposits be 100% backed by very safe liquid assets (reserves at the CB or by very safe short-term assets).<br /><br />I agree with the comment you made elsewhere that compared with Full Reserve banking the weird proposals of PM would be "unnecessarily bureaucratic".<br />http://clintballinger.edublogs.org/2012/12/25/can-full-reserve-banking-actually-even-stop-credit-money-creation-the-chicago-plan-v-positive-money/KongKinghttps://www.blogger.com/profile/10992633301481631373noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-4721058583780987962015-12-05T03:32:20.638-08:002015-12-05T03:32:20.638-08:00Fair point. Warren Mosler wants to regulate JUST t...Fair point. Warren Mosler wants to regulate JUST the asset side. Then there’s simply raising capital ratios and leaving it at that, which amounts to regulating just the liability side.<br /><br />Then there is full reserve which regulates BOTH sides. At least full reserve consists of saying “if assets have characteristics A,B etc, then liabilities must have characteristics C,D etc.”. I.e. if liabilities are supposed to be totally safe, then assets must be totally safe. And if assets (i.e. loans etc) are liable to fall in value, then it must be possible for liabilities to fall in value as well, that is, those liabilities must consist of shares or similar.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-25293941635470261702015-12-04T19:49:41.944-08:002015-12-04T19:49:41.944-08:00Are you confusing assets and liabilities here? You...Are you confusing assets and liabilities here? You say:<br />"One popular form of “liability side” regulation is raising bank capital ratios ... The above sort of “regulate the liability” side is what’s involved in full reserve banking."<br /><br />However, a requirement that bank deposits should be 25% or 100% backed by very safe assets or reserves at the CB is a requirement regarding bank ASSETS. It is not a requirement regarding bank liabilities (deposits).<br /><br />As you emphasise, the ASSET regulations required for Full Reserve banking are far simpler than those advocated by Mosler, Dodd-Frank, etc.<br />Moreover, there would no longer be a need for any of the deposit insurance, lender-of-last resort and bailout facilities advocated by Mosler. <br />KongKinghttps://www.blogger.com/profile/10992633301481631373noreply@blogger.com