The panic of 20072008 was a run on the sale and repurchase market the repo market, which is a very large, shortterm market that provides financing for a wide range of securitization activities and financial institutions. We refer to the combination of securitization plus repo finance as a. Securitized banking and the run on repo ideasrepec. We refer to the combination of securitization plus repo finance as securitized banking, and argue that these activities were at the nexus of the crisis. The purpose of this paper is to propose a mechanism for this new kind of bank run, and to. With declining asset values and increasing haircuts, the u. A traditional banking run is driven by the withdrawal of deposits, while a securitized banking run is driven by the withdrawal of repurchase repo agreements.
Problems in mortgage and credit markets spill over into interbank markets. G1,g19 abstract the panic of 20072008 was a run on the sale and repurchase market the repo market, which is. Securitized banking and the run on repo sciencedirect. The panic of 20072008 was a run on the sale and repurchase market. Securitized banking and the run on repo american economic. The panic of 20072008 was a run on the sale and repurchase market the a. Gorton, gary and andrew metrick 2012, securitized banking and the run on repo. Department of the bank for international settlements, and from time to time by. The purpose of this paper is to propose a mechanism for this new. On the repo markets, see securities industry and financial markets. Download citation securitized banking and the run on repo we introduce a new hybrid approach to joint estimation of value at risk var and expected.
Securitized banking and the run on repo researchgate. Gorton and metrick 2009 characterized the global financial crisis as a systemwide run in the securitized banking systemmore precisely a run on the repo marketsimilar to the banking. A traditionalbanking run is driven by the withdrawal of deposits, while a securitizedbanking run is driven by the withdrawal of repurchase repo agreements. Repo transactions are collateralized, frequently with securitized bonds.
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