The main of the author goes to the restrictions on the means for liquidity derived from the last decade’s regulatory trends. My contention is about the severe distortions caused to all stakeholders and economic agents by the Humpty-Dumpty mantra of (global) financial stability, which entails a number of overlapping controls directed to channel every single stream of liquidity to the banking sector, devised as a mere elongation of central banks and regulatory authorities. To spur the debate, I’d like to pose a couple of questions: (1) does it make sense the financial repression exercise over OTCs through the duties of notice to the regulators? (2) does the unprecedented proliferation of ETFs since the GFC show the flight by investors from conventional financial vehicles which are seen as unreliable and too close to politicians’ hands?
In a nutshell, we would be in the way to forget that liquidity is inevitably about short-term gains and losses, not about money printing, and the adequate discernment of credit risk is the specific role of commercial banks in a market economy; that of the central banks is last resort lending at a penalty rate, and against good collateral, but to commercial banks, not to States.
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