Williams expresses concern that financial innovation driven by regulatory arbitrage is a permanent environmental feature.
“I say this in part to convey a concern that while perhaps the upsides to innovation in intermediation are far larger than I at times perceive them to be, the downsides emanating from instruments and maturity transformation that are more plainly about managing regulatory processes seems a permanent feature of the environment.”
Williams suggests tokenized repos could reduce bank reserve demand by improving intraday liquidity management.
“A deep and liquid intraday market might enhance collateral management and reduce some frictions in managing intraday liquidity, which could reduce banks’ demand for reserves for payment purposes.”