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Gorton and metrick 2009 adrian and shin 2009 and

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Unformatted text preview: creditors regarding regarding the acceptable degree of leverage, or in the margin requirements associated ated with borrowing against the securities that intermediaries hold. Gorton and Metrick (2009), Adrian and Shin (2009), and Geanakoplos (2010) have all stressed the importance of increases in margin requirements in the overnight repurchase (or (or “repo”) market as a factor that contracted the supply of credit in 2008 and 2009. Even Even when shocks to the supply of intermediation originate in a tightening of leverage constraints and/or margin constraints owing to an increased assessment of the risk associated with intermediaries’ assets, the effects of the shocks will be amplified by the dependence of the supply of intermediation on the capital of the intermediary intermediary sector. Intermediaries that are forced to sell assets as a result of tightened ened leverage constraints are likely to suffer losses, and more so to the extent that many of them are forced to sell similar assets at the same time, or to the extent that they are the only “natural buyers” of the assets in question. These losses will then further reduce their capital, further reducing the amount that they are able 10 In this respect the framework sketched here agrees with the one proposed by Bernanke and Blinder (1988), who refer to th...
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