FIN443_WEEK 2_Michael McAndrew_DISCUSSION.docx - Michael McAndrew SundaySep 8 at 8:16am Manage Discussion Entry By the year 2000 huge portions of the

FIN443_WEEK 2_Michael McAndrew_DISCUSSION.docx - Michael...

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Michael McAndrew SundaySep 8 at 8:16am Manage Discussion Entry By the year 2000, huge portions of the financial system in the U.S. were for the first time ever outside the jurisdiction of the Federal Reserve, and these “shadow banks, or non- banks” were borrowing short and lending long, while not being subject to the capital requirements, etc., that are imposed on banks by the Federal Reserve to act as “shock absorbers” to limit risk. These shadow banks have no deposit insurance to prevent runs, and no access to the Fed discount window. New financial innovations were driving risk and leverage into corners of the financial system that had weaker supervision than the Fed could give to the banks. Simply put, the “shadow banks” were not regulated as well as institutions under the jurisdiction of the Federal Reserve, and they collapsed quickly with devastating effects to our economy and to millions of families in the U.S. during the Great Recession of 2007 - 2009.
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