It Depends on What The Meaning of the Word “Bank” Is

Justin Fox says:

If you borrow short and lend long, you’re effectively a bank. It’s becoming ever less clear to me what justification there is for nonbank borrow-short-lend-long-institutions other than regulatory arbitrage.

Brad DeLong retorts that if it lends like a bank, it just is a bank:

Not just “effectively” a bank. You are a bank. Not until the twentieth century did we have organizations that borrowed short and invested long that did not call themselves “banks.” The emergence of non-bank banks has always been the result of attempts at regulatory arbitrage.

But of course there’s the rub — you don’t need a justification besides regulatory arbitrage, that’s all the reason people need to start up something potentially quite lucrative. What’s needed are, somehow, better regulations that it’s not as easy to slip from.