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American Economic Review: Vol. 102 No. 3 (May 2012)


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Three Principles for Market-Based Credit Regulation

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Mehrling, Perry. 2012. "Three Principles for Market-Based Credit Regulation." American Economic Review, 102(3): 107-12.

DOI: 10.1257/aer.102.3.107


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.

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Mehrling, Perry (Barnard College)

JEL Classifications

G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
L51: Economics of Regulation
E32: Business Fluctuations; Cycles
E44: Financial Markets and the Macroeconomy
G28: Financial Institutions and Services: Government Policy and Regulation

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