Monday, 6 October 2008

How to ungum the interbank market

I should have thought of this: FairEconomist did (via NakedCapitalism). The answer is of course for the central bank to require a certain amount of interbank lending as collateral at the window. There's no reason not to make interbank receiveables eligible given the other things that are, and by requiring that banks use them, the Central Bank forces their clients to lend.

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