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Financial Fragility and the Control of Credit : Switzerland's "Lehman Lesson", Shadow Bankng, and Irving Fisher's Proposal for a 100 Percent Reserve Requirement

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abstract Large-scale and unusual events, especially when they bring unwanted consequences, provide an opportunity to ask basic questions.” The finan-cial meltdown of 2007-2009 and its consequences surely fit this description hence delivering an occasion to scrutinize economic and financial struc-tures. Together with researchers from the University of St Gallen, the Swiss initiative “Schweizer Dialog” responded to this opportunity in December 2009 by initializing a dialogue between citizens and experts from business, politics, and academia on the social and economic consequences of the 2007- crisis. In this context, University of St Gallen economist HANS CHRISTOPH BINSWANGER has pointed at the excessive creation of money and credit in the years before the financial meltdown of 2007-2009 as fun-damental problem that had destabilized the financial system. Identifying the need of tighter regulations on money and credit, PROFESSOR BINSWANGER referred to IRVING FISHER’S famous scheme of “100% Money” as remedy that would help to stabilize financial markets in the future.

The objective of this essay is to use PROFESSOR BINSWANGER’S proposal as starting point for a discussion on the scope of financial reform. The essay bases its observations on FISHER’S 100 percent scheme as hypothetical blueprint for a radical and thorough renewing of financial infrastructures. Rather than debating the economic and financial impacts of tighter controls on monetary growth and its aggregates, it focuses on the institutional and – since the current volume of the “Schriften der Assistierenden der Universität St. Gallen” addresses the interdependencies of Switzerland and Europe as key topic – geographic boundaries of regulatory reform.

The remainder of this essay is structured as follows: Chapter II discusses Irving Fisher’s 100 Percent Proposal focusing on its basic mechanics as well as its historic contexts. Chapter III reviews the institutional and geographic boundaries of regulatory debates taking recent trends and events such as the evolution of shadow banking, or Swiss bailout experiences into account. Chapter IV concludes.
   
type book chapter (English)
   
keywords Financial Reform, Fragility, Credit, Securitization, Central Bank, 100 Percent Money, Irving Fisher
   
book title Schweiz und Europa - Auswirkungen auf Wirtschaft, Recht und Gesellschaft
date of appearance 2011
publisher Stämpfli
series title Schriften der Assistierenden der Universität St Gallen
page(s) 101
citation von Müller, C. (2011). Financial Fragility and the Control of Credit: Switzerland's "Lehman Lesson", Shadow Bankng, and Irving Fisher's Proposal for a 100 Percent Reserve Requirement. In Schweiz und Europa - Auswirkungen auf Wirtschaft, Recht und Gesellschaft (pp. 101): Stämpfli.