An op-​ed commentary piece in The Wall Street Journal entitled, "Unleash the Banks in Times of Crisis," tells us, "​Since the U.​S. Treasury market froze in March 2020 at the outset of the Covid crisis, policy makers have been laudably concerned with improving that market'​s liquidity. But as two of the people in the engine room during that fateful month, we believe there is a broader concern: the structural implications of our financial system'​s increasing reliance on short-​term wholesale funding." Authors Justin Muzinich and Randal Quarles explain, "​Today, short-​term wholesale funding is one of the main ways that large companies finance their operations. Large enterprises regularly issue commercial paper: short-​term notes that generally have a life of 30 to 90 days, which the companies expect to renew at maturity. The odds of something happening to the credit of a large, stable public company within 30 days are low, so the company can issue this paper more cheaply than it could get credit from a bank. The efficiency of this system supports a more robust and faster-​growing economy than one purely reliant on bank credit -- until it doesn'​t. Short-​term wholesale funding is vulnerable to sudden shocks. A market surprise can make buyers reluctant to renew a company'​s maturing commercial paper. The source of the shock can be anything. In the Penn Central railroad crisis of 1970, it was the bankruptcy of a major commercial-​paper issuer; in the financial crisis of 2008, it was the rapid reversal of confidence in the value of mortgages; in 2020 it was Covid; in some future crisis it could be a geopolitical event." They write, "The shock and subsequent nonrenewal of maturing commercial paper can transform a short period of financial uncertainty into a long-​term strain on the real economy. Even a brief interruption of commercial-​paper issuance can suddenly remove funding for large enterprises, potentially triggering a cascade of defaults. Many of these large companies then seek funding from banks, using up available liquidity during a stressful period and making funds less available for small- and medium-​size businesses. As this short-​term market shock threatens to spread through the economy, the government is often forced to step in using taxpayer money. But these government rescues at the very least create moral hazard, and at worst don'​t work." The piece says, "For instance, in March 2020 commercial-​paper investors halted investments because of the market uncertainty introduced by Covid lockdowns, creating a run on the money-​market funds holding that paper. In response, the Federal Reserve and Treasury tried three times in a 60-​hour period to craft a money-​market-​fund liquidity program to stanch a potential collapse of the money-​market fund system. The third attempt finally succeeded. The program provided loans that the Fed secured by commercial paper and other assets of the money-​market funds, coupled with a $​10 billion commitment from the Treasury to cover any losses the Fed might incur. This effort stopped the run, but as Wellington said of Waterloo, it was a close-​run thing." It adds, "There is a better way to deal with the uncertainty posed by short-​term wholesale funding than relying on the government as a backstop.... But the overcalibrated capital and liquidity requirements imposed by policy makers in the aftermath of the Dodd-​Frank Act of 2010 have limited the ability of banks to step in when the nonbank system falters. By adjusting some of those requirements during times of crisis, we can encourage a more fluid transfer of funds between banks and the market. This approach has already proved successful: In March 2020, we led the bank regulators in temporarily easing the leverage-​ratio requirements to allow the banks to accept the deposits that were flowing in from elsewhere in the system and successfully deploy them in support of the real economy. We should codify this precedent into a law that would allow the Fed to suspend leverage-​capital requirements for a limited period of time during a crisis, to be reinstated afterward.... Our proposal is no panacea, but it would be a practical improvement that ought to receive bipartisan support before crisis strikes again."

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