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How to stabilize the banking system: Lessons from the pre-1914 London money market

Sissoko, Carolyn

Authors

Carolyn Sissoko



Abstract

Copyright © European Association for Banking and Financial History e.V. 2016. This article argues that the British financial system in the era prior to World War I provides modern policymakers with a successful model of how to stabilize the banking system. This model had two components: incentives were structured to ensure that all banks that originated or traded assets on the money market sought only to trade in high-quality assets; and macro-prudential regulation promoted the segregation of money markets from capital markets, monitored the growth of money market credit, and restricted trade on the money market in assets issued by entities and sectors whose money market liabilities were growing so fast that the most reasonable explanation was that the money market was being used to finance longer-term investment. These facts indicate that policymakers can successfully stabilize the banking system through a combination of structural reform and regulation of the growth of credit.

Journal Article Type Article
Publication Date Apr 1, 2016
Journal Financial History Review
Print ISSN 0968-5650
Electronic ISSN 1474-0052
Publisher Cambridge University Press (CUP)
Peer Reviewed Peer Reviewed
Volume 23
Issue 1
Pages 1-20
APA6 Citation Sissoko, C. (2016). How to stabilize the banking system: Lessons from the pre-1914 London money market. Financial History Review, 23(1), 1-20. https://doi.org/10.1017/S0968565016000020
DOI https://doi.org/10.1017/S0968565016000020
Keywords prime bank bills, commercial bills, real bills, safe assets, macro-prudential regulation, financial stability, discount policy, London money market, central banking, Bank of England
Publisher URL https://doi.org/10.1017/S0968565016000020

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Copyright Statement
This article has been published in a revised form in Financial History Review https://doi.org/10.1017/S0968565016000020. This version is free to view and download for private research and study only. Not for re-distribution or re-use. © the author.





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