The government is already working in overdrive to regulate regular banking, but there is a whole other realm of banking that operates with little government oversight: shadow banking. According to an article in Bloomberg, the industry of converting of short-term liabilities into long-term assets is growing quickly.
How can this system be made more resilient? Mark Carney, the new governor of the Bank of England, offered a sense of what regulators are thinking in a speech last week: Give shadow banks the same access to emergency central-bank loans that traditional banks enjoy. This is a dangerous idea, with the potential to produce the kind of speculative boom that would end very badly. Imagine the risks investors would be willing to take if they knew the central bank would always provide cash if private lenders balked.