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Capital reserves (Haircuts)
Proprietary dealing (price risk, “leverage”) • In order to focus on….
– System interlinkages and system behavior
– Normal liquidity risk, not tail solvency risk
– Tail liquidity backstops, both funding liquidity (money)
and market liquidity (capital) Financial Stability Board (WS5)
• “Securities lending and repo markets play
crucial roles in supporting price discovery and
secondary market liquidity for a variety of
securities issued by both public and private
agents.” A Bagehot Moment Regulation I: Systemic Risk
“Inherent Instability of Credit”
• Hawtrey (1919) Currency and Credit
• Minsky (1986) Stabilizing an Unstable
• Adrian and Shin (2010) “Liquidity and
Leverage” Centrality of the Dealer Function • Treynor, 1987 Funding Liquidity and Market Liquidity Boom Order Flow:
Asset Manager > Capital Funding Bank Bust Order Flow:
Asset Manager < Capital Funding Bank Bust Order Flow:
Dealer Funding Stress...
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This document was uploaded on 02/16/2014.
- Fall '14