Replumbing Our Financial System: Uneven Progress
by Darrell Duffie
Graduate School of Business, Stanford University
The financial crisis of 2007-09 has spurred significant ongoing
changes in the "pipes and valves" through which cash and
risk flow through the center of our financial system. These
include adjustments to the forms of lender-of-last-resort financing
from the central bank and changes the infrastructure for
the wholesale overnight financing of major dealer banks, particularly
through the tri-party repo markets. Significant changes
in the regulation of money-market funds are under consideration.
The Dodd-Frank Act mandates the central clearing of
standardized over-the-counter derivatives, although a pending
exemption of foreign exchange derivatives remains to be
decided. The vulnerability of major dealers to runs by primebrokerage
clients is also an issue to be addressed. I focus on
U.S. financial plumbing and on areas where financial stability
remains a concern.
JEL Codes: G01, G21, G28.
(PDF, 29 pages 487 kb)
Discussion by Stephen G. Cecchetti