Odd Lots Younger and Menand Explain How We Got the Modern Banking System
20 snips
Dec 15, 2022 
Josh Younger is a research partner focused on the origins of modern banking, while Lev Menand is a Columbia law professor and author probing the Federal Reserve's evolution. They discuss the historical development of modern banking, including the rise of shadow banking and the repo market. The pair also examine the Federal Reserve's complex influence in economic management and the persistent vulnerabilities within the financial system. The insights into digital currencies and regulatory challenges further underscore the need for reevaluating banking practices and ensuring financial stability.
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Benefits of Shadow Banking
- Shadow banking offers benefits like increased market liquidity and lower transaction costs, particularly in the Treasury market.
- It allows for greater elasticity, providing new money during shocks like the one in 2020.
Eurodollars and Stablecoins: Parallel Origins
- The Eurodollar market originated from communist efforts to evade U.S. asset freezes, starting small and growing with specific applications like cross-border arbitrage.
- This mirrors the trajectory of stablecoins, which began with a narrow use case and raise questions about future growth and regulation.
Fed's Control and Involvement
- The Federal Reserve's control over the money supply is limited because a significant portion exists outside the traditional banking system.
- This over-reliance on emergency lending and ad hoc facilities makes the Fed's role in financial markets larger than intended.
