Stress testing / Liquidity and funding risk [30]

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Bullet points include: Banks faced unprecedented shock to their liquidity positions Indeed, perhaps crisis primarily a ‘liquidity’ rather than a ‘credit’ crisis per se Distrust of banking counterparties because of lack of transparency of sub-prime losses led normal interbank lending to seize up Banks might have been able to walk away from off-balance sheet vehicles But this could itself create loss of confidence So most banks stood behind their off balance sheet funds (and hedge fund operations) Practical importance of ‘shadow banking’

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