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Three Principles for Market-Based Credit Regulation

Perry Mehrling
American Economic Review 2012 102(3), 107-112
A key lesson of the financial crisis 2007-09 is that the Bagehot Rule, “lend freely but at a high rate,” needs to be updated for the emerging market-based credit system. A modern rule is suggested: Markets, not Banks; Outside spread, not Inside spread; Core, not Periphery.