banks should be made to pledge assets as collateral, in sufficient quantity to cover their deposits and other short-term liabilities. A rule to this effect could replace conventional deposit insurance (with premiums in effect collected upfront in the form of haircuts on the collateral).
Read the whole thing. Pointer from Mark Thoma. Crook is reviewing a book by Mervyn King. I will have to read the book, because I do not understand the concept.
I think of an ordinary bank as having loans as assets. Its liabilities consist of deposits and equity. You can think of the assets as already “pledged” to the depositors, and if the depositors can be paid off, then the shares in the bank have positive value. It sounds like what King is talking about is an intermediary (a government agency?) that manages the way that these assets are pledge in a way that better protects depositors. Again, I will have to read the book.