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Credit Allocation Policies to Advance Financial Stability and Social Welfare

In this column for the New America Foundation's "New American Contract," Robert Pollin asks "How do we design measures that are capable of promoting both financial stability and broadly-shared social welfare?" One element of the framework he envisions is an asset-based reserve requirement, which would require financial institutions to maintain a cash reserve proportional to the riskier assets in their portfolios. Pollin lays out the history of such requirements and the mechanisms by which they create stabilization in financial markets and create incentives for banks to make channel funds towards socially desirable economic activities.

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