Monetary Fragility with out Banks: Classes from 18th century
Proponents of narrow banking have argued that lender of final resort insurance policies by central banks, together with deposit insurance coverage and different authorities interventions within the cash markets, are the first causes of monetary instability. Nevertheless, as we present on this submit, non-bank monetary establishments (NBFIs) triggered a monetary disaster in 1772 though the monetary system at the moment had few banks and deposits weren’t insured. NBFIs profited from funding dangerous, longer-dated property utilizing low-cost short-term wholesale funding and, once they ultimately failed, authorities felt compelled to rescue the monetary system.
With or with out banks, monetary fragility will all the time be there in some kind or the opposite…
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