In a provocative new book, The Money Problem: Rethinking Financial Regulation, Professor Morgan Ricks argues that the government should reclaim control over money creation. Money, Ricks argues, is not just the cash in your pocket or the balance in your checking account. Instead, at least for purposes of financial stability policy, money is best equated with short-term debt. For most of the twentieth century, such debt was issued primarily by regulated commercial banks and insured by the Federal Deposit Insurance Corporation (FDIC), resulting in a fairly stable financial system. As a result of financial innovation, however, much of today's short-term debt is issued in the far-less-regulated shadow banking system – a market-based system of intermediation that serves many of the same functions traditionally performed by banks. Runs by money claimants in the shadow banking system were central to the 2007-2009 financial crisis (Crisis). The Dodd-Frank Wall Street Reform and Consumer Protection Act and other post-Crisis reforms, however, have done relatively little to shut down this unauthorized money creation. That, in Ricks's assessment, is a mistake.
Banking and Finance Law | Business Organizations Law | Law
Center for Law and Economic Studies
The Importance of "Money",
Harv. L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/966