How does a sandbox S/L respond to a downturn?

 The pit boss is faced with government taking out large bonds while deposits pile up. The pit boss would borrow short and lend long, essentially, ASAP to restore all inventory levels to the same uncertainty ratio. In other words, whoever blundered pays losses to everyone who didn't blunder, and pricing remains neutral. This should be a gain to the pit boss, but it will lose that gain later as inventories adjust, if rank remains. 

The pit boss reacts when variance in market risk hits a point.  The traders do not see events until a point and a half. That extra half step is in the contract, agreed in exchange for round robin access to the boards. But the S/L bankers wants a closed system, it needs everyone on board with smooth access to and from the S/L. Then folks who see sudden shortages will at least see sudden interest gains in their small accounts.

What is natural rate? In sandbox, the earnings from petty cash is zero, you are the only depositor and borrower. In a short chain cash, if you are not using it, then you will lose the half point pit boss error term. So the earnings on deposits should be a half point of unit variance, assuming transaction costs zero. The utility of banking is the utility of smoothing out about three points of price variance over the consumer depreciation cycles.  It is what allows us to have Christmas and spring, and government imbalances; it is the variance induced by state changes, jumping around the Markov 3-tuples.

Central banks are stuck with government skew, a hard barrier. They will always do super position. Shift to one state when adjusting for government innovations, an another state otherwise.  The Swift bankers will be hedged out of the sandbox if they try it. So the better solution is to let government to expose the endogenous state changes with a quick reaction inflation tax. The contract has enough flexibility to let Treasury increase the tax to 4 percent for two quarters, enough inflation to satisfy any Keynesian. But it will later be forced to drop it to one percent for a while. The Swift banks need not be impacted much except they have a renewal coming up.

Variance and points. I start with the assumption that prices vary 3% of gdp. Then I speculate on rank,, this economy has a four digit accuracy.  So the pit boss error is about 3/8 of a point of GDP, or something, it is holding one and a half more capacity then Shannon, as we are adaptive. I use a quarter to a half, and that is also the range of the monopoly fee.