But how far should the public sector go in defining the terms of maturity transformation?. It would be reassuring to imagine that underlying saving and investment propensities of the private sector define the real interest rate in normal times. Keynes threw some doubt on this classical view. In addition, the fact is that government policies nowadays dominate the terms of maturity transformation in modern economies. Very large government debt defines the yield curve. Prudential regulations have a pervasive effect: many supervisory rules for financial firms in effect create a near-captive demand of regulated entities for government paper. In some.
