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20.1 Quantifying Short-Term Funding 20.1 Quantifying Short-Term Funding
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20.1.1 Gross Funding 20.1.1 Gross Funding
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20.1.2 Net Funding 20.1.2 Net Funding
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20.1.3 Importance of Short-Term Funding 20.1.3 Importance of Short-Term Funding
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20.2 Caps on Short-Term Funding 20.2 Caps on Short-Term Funding
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20.3 Indirect Limits on Short-Term Funding 20.3 Indirect Limits on Short-Term Funding
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20 Dependence of the Financial System on Short-Term Funding
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Published:June 2016
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Abstract
Contagion depends critically on short-term funding, without such funding creditors cannot run. They can, however, refuse to lend more, and this was a major problem in the crisis—institutions that were dependent on short-term funding, like broker-dealers or corporate commercial paper issuers, could not get such funding. If one could design a financial system that was not critically dependent on short-term funding, the possibilities of contagion would be greatly diminished. This chapter explores how short-term funding could be sufficiently limited to control contagion to the point where the need for lender of last resort or guarantees was virtually eliminated. It concludes this is not feasible. It also considers the downside of the government replacing the private sector as supplier of short-term funding.
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