Ben S Bernanke: Reflections on a year of crisis
Speech by Mr Ben S Bernanke, Chairman of the Board of Governors of the US Federal
Reserve System, at the Federal Reserve Bank of Kansas City's Annual Economic
Symposium, Jackson Hole, Wyoming, 21 August 2009.
* * *
By the standards of recent decades, the economic environment at the time of this
symposium one year ago was quite challenging. A year after the onset of the current crisis in
August 2007, financial markets remained stressed, the economy was slowing, and inflation -
driven by a global commodity boom - had risen significantly. What we could not fully
appreciate when we last gathered here was that the economic and policy environment was
about to become vastly more difficult. In the weeks that followed, several systemically critical
financial institutions would either fail or come close to failure, activity in some key financial
markets would virtually cease, and the global economy would enter a deep recession. My
remarks this morning will focus on the extraordinary financial and economic events of the
past year, as well as on the policy responses both in the United States and abroad.
One very clear lesson of the past year - no surprise, of course, to any student of economic
history, but worth noting nonetheless - is that a full-blown financial crisis can exact an
enormous toll in both human and economic terms. A second lesson - once again, familiar to
economic historians - is that financial disruptions do not respect borders. The crisis has been
global, with no major country having been immune.
History is full of examples in which the policy responses to financial crises have been slow
and inadequate, often resulting ultimately in greater economic damage and increased fiscal
costs. In this episode, by contrast, policymakers in the United States and around the globe
responded with speed and force to arrest a rapidly deteriorating and dangerous situation.
Looking forward, we must urgently address structural weaknesses in the financial system, in
particular in the regulatory framework, to ensure that the enormous costs of the past two
years will not be borne again.
September-October 2008: the crisis intensifies
When we met last year, financial markets and the economy were continuing to suffer the
effects of the ongoing crisis. We know now that the National Bureau of Economic Research
has determined December 2007 as the beginning of the recession. The U.S. unemployment
rate had risen to 5-3/4 percent by July, about 1 percentage point above its level at the
beginning of the crisis, and household spending was weakening. Ongoing declines in
residential construction and house prices and rising mortgage defaults and foreclosures
continued to weigh on the U.S. economy, and forecasts of prospective credit losses at
financial institutions both here and abroad continued to increase. Indeed, one of the nation's
largest thrift institutions, IndyMac, had recently collapsed under the weight of distressed
mortgages, and investors continued to harbor doubts about the condition of the
governmentsponsored enterprises (GSEs) Fannie Mae and Freddie Mac, despite the approval by the
Congress of open-ended support for the two firms.
Notwithstanding these significant concerns, however, there was little to suggest that market
participants saw the financial situation as about to take a sharp turn for the worse. For
example, although indicators of default risk such as interest rate spreads and quotes on
credit default swaps remained well above historical norms, most such measures had
declined from earlier peaks, in some cases by substantial amounts. And in early September,
when the target for the federal funds rate was 2 percent, investors appeared to see little
chance that the federal funds rate would be below 1-3/4 percent six months later. That is, as
of this time last year, market participants evidently believed it improbable that significant
additional monetary policy stimulus would be needed in the United States.
Nevertheless, shortly after our last convocation, the financial crisis intensified dramatically.
Despite the steps that had been taken to support Fannie Mae and Freddie Mac, their
condition continued to worsen. In early September, the companies' regulator placed both into
conservatorship, and the Treasury used its recently enacted authority to provide the firms
with massive financial support.
Shortly thereafter, several additional large U.S. financial firms also came under heavy
pressure from creditors, counterparties, and customers. The Federal Reserve has
consistently maintained the view that the disorderly failure of one or more systemically
important institutions in the context of a broader financial crisis could have extremely adverse
consequences for both the financial system and the economy. We have therefore spared no
effort, within our legal authorities and in appropriate cooperation with other agencies, to avert
such a failure. The case of the investment bank Lehman Brothers proved exceptionally
difficult, however. Concerted government attempts to find a buyer for the company or to
develop an industry solution proved unavailing, and the company's available collateral fell
well short of the amount needed to secure a Federal Reserve loan of sufficient size to meet
its funding needs. As the Federal Reserve cannot make an unsecured loan, and as the
government as a whole lacked appropriate resolution authority or the ability to inject capital,
the firm's failure was, unfortunately, unavoidable. The Federal Reserve and the Treasury
were compelled to focus instead on mitigating the fallout from the failure, for example, by
taking measures to stabilize the triparty repurchase (repo) market.
In contrast, in the case of the insurance company American International Group (AIG), the
Federal Reserve judged that the company's financial and business assets were adequate to
secure an $85 billion line of credit, enough to avert its imminent failure. Because AIG was
counterparty to many of the world's largest financial firms, a significant borrower in the
commercial paper market and other public debt markets, and a provider of insurance
products to tens of millions of customers, its abrupt collapse likely would have intensified the
crisis substantially further, at a time when the U.S. authorities had not yet obtained the
necessary fiscal resources to deal with a massive systemic event.
The failure of Lehman Brothers and the near-failure of AIG were dramatic but hardly isolated
events. Many prominent firms struggled to survive as confidence plummeted. The investment
bank Merrill Lynch, under pressure in the wake of Lehman's failure, agreed to be acquired by
Bank of America; the major thrift institution Washington Mutual was resolved by the Federal
Deposit Insurance Corporation (FDIC) in an assisted transaction; and the large commercial
bank Wachovia, after experiencing severe liquidity outflows, agreed to be sold. The two
largest remaining free-standing investment banks, Morgan Stanley and Goldman Sachs,
were stabilized when the Federal Reserve approved, on an emergency basis, their
applications to become bank holding companies.
Nor were the extraordinary pressures on financial firms during September and early October
confined to the United States: For example, on September 18, the U.K. mortgage lender
HBOS, with assets of more than $1 trillion, was forced to merge with Lloyds TSB. On
September 29, the governments of Belgium, Luxembourg, and the Netherlands effectively
nationalized Fortis, a banking and insurance firm that had assets of around $1 trillion. The
same day, German authorities provided assistance to Hypo Real Estate, a large commercial
real estate lender, and the British government nationalized another mortgage lender,
Bradford and Bingley. On the next day, September 30, the governments of Belgium, France,
and Luxembourg injected capital into Dexia, a bank with assets of more than $700 billion,
and the Irish government guaranteed the deposits and most other liabilities of six large Irish
financial institutions. Soon thereafter, the Icelandic government, lacking the resources to
rescue the three largest banks in that country, put them into receivership and requested
assistance from the International Monetary Fund (IMF) and from other Nordic governments.
In mid-October, the Swiss authorities announced a rescue package for UBS, one of the
world's largest banks, that consisted of a capital injection and a purchase of assets.1 The
growing pressures were not limited to banks with significant exposure to U.S. or U.K real
estate or to securitized assets. For example, unsubstantiated rumors circulated in late
September that some large Swedish banks were having trouble rolling over wholesale
deposits, and on October 13 the Swedish government announced measures to guarantee
bank debt and to inject capital into banks.2
The rapidly worsening crisis soon spread beyond financial institutions into the money and
capital markets more generally. As a result of losses on Lehman's commercial paper, a
prominent money market mutual fund announced on September 16 that it had "broken the
buck" - that is, its net asset value had fallen below $1 per share. Over the subsequent
several weeks, investors withdrew more than $400 billion from so-called prime money
funds.3 Conditions in short-term funding markets, including the interbank market and the
commercial paper market, deteriorated sharply. Equity prices fell precipitously, and credit risk
spreads jumped. The crisis also began to affect countries that had thus far escaped its worst
effects. Notably, financial markets in emerging market economies were whipsawed as a flight
from risk led capital inflows to those countries to swing abruptly to outflows.
The policy response
Authorities in the United States and around the globe moved quickly to respond to this new
phase of the crisis, although the details differed according to the character of financial
systems. The financial system of the United States gives a much greater role to financial
markets and to nonbank financial institutions than is the case in most other nations, which
rely primarily on banks.4 Thus, in the United States, a wider variety of policy measures was
needed than in some other nations.
In the United States, the Federal Reserve established new liquidity facilities with the goal of
restoring basic functioning in various critical markets. Notably, on September 19, the Fed
announced the creation of a facility aimed at stabilizing money market mutual funds, and the
Treasury unveiled a temporary insurance program for those funds. On October 7, the Fed
announced the creation of a backstop commercial paper facility, which stood ready to lend
against highly rated commercial paper for a term of three months.5 Together, these steps
1
Of course, these interventions were not the first of the crisis. For example, in July and August of 2007, two
German banks that had relied heavily on market funding through asset-backed commercial paper (ABCP)
conduits - IKB and Sachsen LB - received assistance from public-sector owners to cope with severe funding
pressures. In September 2007, Northern Rock, a large mortgage lender that relied heavily on securitizations
for funding, was nationalized by U.K. authorities after experiencing a run by retail depositors. In February
2008, West LB - another German bank with large ABCP conduits - received protection against losses from its
owners, including the state of North Rhine-Westphalia. And in March 2008, the U.S. Treasury and the Federal
Reserve facilitated the acquisition of the investment bank Bear Stearns by JPMorgan Chase & Co.
2
Throughout these remarks, where examples are given, they represent only a selection of instances, not an
exhaustive list of all the relevant cases.
3
Prime money funds hold a variety of instruments, with commercial paper and bank obligations typically
accounting for the majority of their assets.
4
For example, most financing of automobile purchases was provided through nonbank channels, and such
channels began shutting down in September and October of 2008.
5
More precisely, in the Commercial Paper Funding Facility (CPFF), the Fed lends to a special purpose vehicle
that, in turn, purchases highly rated three-month commercial paper directly from eligible issuers. On October
21, the Fed also announced the creation of the Money Market Investor Funding Facility, or MMIFF, which was
intended to provide a source of backup liquidity to U.S. money market mutual funds and certain other money
market investors. Given the improvement in short-term markets brought about by the Asset-Backed
Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the CPFF, and the Treasury
guarantee of money market funds, the MMIFF never had to be tapped. Nonetheless, market participants
BIS Review 27/2009
helped stem the massive outflows from the money market mutual funds and stabilize the
commercial paper market.
During this period, foreign commercial banks were a source of heavy demand for U.S. dollar
funding, thereby putting additional strain on global bank funding markets, including U.S.
markets, and further squeezing credit availability in the United States. To address this
problem, the Federal Reserve expanded the temporary swap lines that had been established
earlier with the European Central Bank (ECB) and the Swiss National Bank, and established
new temporary swap lines with seven other central banks in September and five more in late
October, including four in emerging market economies.6 In further coordinated action, on
October 8, the Federal Reserve and five other major central banks simultaneously cut their
policy rates by 50 basis points.
The failure of Lehman Brothers demonstrated that liquidity provision by the Federal Reserve
would not be sufficient to stop the crisis; substantial fiscal resources were necessary. On
October 3, on the recommendation of the Administration and with the strong support of the
Federal Reserve, the Congress approved the creation of the Troubled Asset Relief Program,
or TARP, with a maximum authorization of $700 billion to support the stabilization of the U.S.
financial system.
Markets remained highly volatile and pressure on financial institutions intense through the
first weeks of October. On October 10, in what would prove to be a watershed in the global
policy response, the Group of Seven (G-7) finance ministers and central bank governors,
meeting in Washington, committed in a joint statement to work together to stabilize the global
financial system. In particular, they agreed to prevent the failure of systemically important
financial institutions; to ensure that financial institutions had adequate access to funding and
capital, including public capital if necessary; and to put in place deposit insurance and other
guarantees to restore the confidence of depositors.7 In the following days, many countries
around the world announced comprehensive rescue plans for their banking systems that built
on the G-7 principles. To stabilize funding, during October more than 20 countries expanded
their deposit insurance programs, and many also guaranteed nondeposit liabilities of banks.
In addition, amid mounting concerns about the solvency of the global banking system, by the
end of October more than a dozen countries had announced plans to inject public capital into
banks, and several announced plans to purchase or guarantee bank assets. The
comprehensive U.S. response, announced on October 14, included capital injections into
both large and small banks by the Treasury; a program which allowed banks and bank
holding companies, for a fee, to issue FDIC-guaranteed senior debt; the extension of deposit
insurance to all noninterest-bearing transactions deposits, of any size; and the Federal
Reserve's continued commitment to provide liquidity as necessary to stabilize key financial
institutions and markets.8
This strong and unprecedented international policy response proved broadly effective.
Critically, it averted the imminent collapse of the global financial system, an outcome that
seemed all too possible to the finance ministers and central bankers that gathered in
Washington on October 10. However, although the intensity of the crisis moderated and the
risk of systemic collapse declined in the wake of the policy response, financial conditions
remained highly stressed. For example, although short-term funding spreads in global
markets began to turn down in October, they remained elevated into this year. And, although
generalized pressures on financial institutions subsided somewhat, government actions to
prevent the disorderly failures of individual, systemically significant institutions continued to
be necessary. In the United States, support packages were announced for Citigroup in
November and Bank of America in January. Broadly similar support packages were also
announced for some large European institutions, including firms in the United Kingdom and
the Netherlands.9
Although concerted policy actions avoided much worse outcomes, the financial shocks of
September and October nevertheless severely damaged the global economy - starkly
illustrating the potential effects of financial stress on real economic activity. In the fourth
quarter of 2008 and the first quarter of this year, global economic activity recorded its
weakest performance in decades. In the United States, real GDP plummeted at nearly a 6
percent average annual pace over those two quarters - an even sharper decline than had
occurred in the 1981-82 recession. Economic activity contracted even more precipitously in
many foreign economies, with real GDP dropping at double-digit annual rates in some cases.
The crisis affected economic activity not only by pushing down asset prices and tightening
credit conditions, but also by shattering household and business confidence around the
world.
In response to these developments, the Federal Reserve expended the remaining
ammunition in the traditional arsenal of monetary policy, bringing the federal funds rate
down, in steps, to a target range of 0 to 25 basis points by mid-December of last year. It also
took several measures to further supplement its traditional arsenal. In particular, on
November 25, the Fed announced that it would purchase up to $100 billion of debt issued by
the housing-related GSEs and up to $500 billion of agency-guaranteed mortgage-backed
securities, programs that were expanded substantially and augmented by a program of
purchases of Treasury securities in March.10 The goal of these purchases was to provide
additional support to private credit markets, particularly the mortgage market. Also on
November 25, the Fed announced the creation of the Term Asset-Backed Securities Loan
Facility (TALF). This facility aims to improve the availability and affordability of credit for
households and small businesses and to help facilitate the financing and refinancing of
commercial real estate properties. The TALF has shown early success in reducing risk
spreads and stimulating new securitization activity for assets included in the program.
Foreign central banks also cut policy rates to very low levels and implemented
unconventional monetary measures. For example, the Bank of Japan began purchasing
commercial paper in December and corporate bonds in January. In March, the Bank of
England announced that it would purchase government securities, commercial paper, and
corporate bonds, and the Swiss National Bank announced that it would purchase corporate
bonds and foreign currency. For its part, the ECB injected more than €400 billion of one-year
funds in a single auction in late June. In July, the ECB began purchasing covered bonds,
which are bonds that are issued by financial institutions and guaranteed by specific asset
pools. Actions by central banks augmented large fiscal stimulus packages in the United
States, China, and a number of other countries.
On February 10, Treasury Secretary Geithner and the heads of the federal banking agencies
unveiled the outlines of a new strategy for ensuring that banking institutions could continue to
provide credit to households and businesses during the financial crisis. A central component
of that strategy was the exercise that came to be known as the bank stress test.11 Under this
initiative, the banking regulatory agencies undertook a forward-looking, simultaneous
evaluation of the capital positions of 19 of the largest bank holding companies in the United
States, with the Treasury committing to provide public capital as needed. The goal of this
supervisory assessment was to ensure that the equity capital held by these firms was
sufficient - in both quantity and quality - to allow those institutions to withstand a
worse-thanexpected macroeconomic environment over the subsequent two years and yet remain
healthy and capable of lending to creditworthy borrowers. This exercise, unprecedented in
scale and scope, was led by the Federal Reserve in cooperation with the Office of the
Comptroller of the Currency and the FDIC. Importantly, the agencies' report made public
considerable information on the projected losses and revenues of the 19 firms, allowing
private analysts to judge for themselves the credibility of the exercise. Financial market
participants responded favorably to the announcement of the results, and many of the tested
banks were subsequently able to tap public capital markets.
Overall, the policy actions implemented in recent months have helped stabilize a number of
key financial markets, both in the United States and abroad. Short-term funding markets are
functioning more normally, corporate bond issuance has been strong, and activity in some
previously moribund securitization markets has picked up. Stock prices have partially
recovered, and U.S. mortgage rates have declined markedly since last fall. Critically, fears of
financial collapse have receded substantially. After contracting sharply over the past year,
economic activity appears to be leveling out, both in the United States and abroad, and the
prospects for a return to growth in the near term appear good. Notwithstanding this
noteworthy progress, critical challenges remain: Strains persist in many financial markets
across the globe, financial institutions face significant additional losses, and many
businesses and households continue to experience considerable difficulty gaining access to
credit. Because of these and other factors, the economic recovery is likely to be relatively
slow at first, with unemployment declining only gradually from high levels.
Interpreting the crisis: elements of a classic panic
How should we interpret the extraordinary events of the past year, particularly the sharp
intensification of the financial crisis in September and October? Certainly, fundamentals
played a critical role in triggering those events. As I noted earlier, the economy was already
in recession, and it had weakened further over the summer. The continuing dramatic decline
in house prices and rising rates of foreclosure raised serious concerns about the values of
mortgage-related assets, and thus about large potential losses at financial institutions. More
broadly, investors remained distrustful of virtually all forms of private credit, especially
structured credit products and other complex or opaque instruments.
At the same time, however, the events of September and October also exhibited some
features of a classic panic, of the type described by Bagehot and many others.12 A panic is a
generalized run by providers of short-term funding to a set of financial institutions, possibly
resulting in the failure of one or more of those institutions. The historically most familiar type
of panic, which involves runs on banks by retail depositors, has been made largely obsolete
by deposit insurance or guarantees and the associated government supervision of banks.13
But a panic is possible in any situation in which longer-term, illiquid assets are financed by
short-term, liquid liabilities, and in which suppliers of short-term funding either lose
confidence in the borrower or become worried that other short-term lenders may lose
confidence.14,15 Although, in a certain sense, a panic may be collectively irrational, it may be
entirely rational at the individual level, as each market participant has a strong incentive to be
among the first to the exit.
Panics arose in multiple contexts last year. For example, many financial institutions, notably
including the independent investment banks, financed a portion of their assets through
shortterm repo agreements. In repo agreements, the asset being financed serves as collateral for
the loan, and the maximum amount of the loan is the current assessed value of the collateral
less a haircut. In a crisis, haircuts typically rise as short-term lenders attempt to protect
themselves from possible declines in asset prices. But this individually rational behavior can
set off a run-like dynamic: As high haircuts make financing portfolios more difficult, some
borrowers may have no option but to sell assets into illiquid markets. These forced sales
drive down asset prices, increase volatility, and weaken the financial positions of all holders
of similar assets, which in turn increases the risks borne by repo lenders and thus the
haircuts they demand.16 This unstable dynamic was apparent around the time of the
nearfailure of Bear Stearns in March 2008, and haircuts rose particularly sharply during the
worsening of the crisis in mid-September.17 As we saw last fall, when a vicious funding spiral
of this sort is at work, falling asset prices and the collapse of lender confidence may create
financial contagion, even between firms without significant counterparty relationships. In such
an environment, the line between insolvency and illiquidity may be quite blurry.
13
The Northern Rock episode in the United Kingdom may be seen as a counterexample, but in that case deposit
insurance coverage was only partial.
14
To be sure, there are good economic reasons for a maturity mismatch between assets and liabilities in the
financial system, including allowing households flexibility in when to consume (see Douglas W. Diamond and
Philip H. Dybvig (1983), "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, vol. 91
(June), pp. 401-19). Moreover, short-term creditors can help to impose market discipline on financial
institutions (see Charles W. Calomiris and Charles M. Kahn (1991), "The Role of Demandable Debt in
Structuring Optimal Banking Arrangements," American Economic Review, vol. 81 (June), pp. 497-513; and
Douglas W. Diamond and Raghuram G. Rajan (2001), "Liquidity Risk, Liquidity Creation, and Financial
Fragility: A Theory of Banking," Journal of Political Economy, vol. 109 (April), pp. 287-327).
15
Also, during a panic, financial firms concerned about funding are likely to hoard liquidity, further exacerbating
the situation. See Douglas W. Diamond and Raghuram G. Rajan (2009), "Fear of Fire Sales and the Credit
Freeze," NBER Working Paper Series 14925 (Cambridge, Mass.: National Bureau of Economic Research,
April); and Zhiguo He and Wei Xiong (2009), "Dynamic Debt Runs)," unpublished paper, June 30, Princeton
University, Princeton, N.J.
16
See Markus K. Brunnermeier (2009), "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of
Economic
Perspectives, vol. 23 (Winter), pp. 77-100. This dynamic differed from the standard bank run in that
investors did not completely withdraw funding. The reason for the difference lies in the nature of the lending
contract. In a standard bank deposit contract, the price of deposits in terms of currency is fixed, and so
depositors have no alternative to withdrawal when the value of deposits falls below the value of currency. For
similar reasons, many investors in money market mutual funds withdrew all their funds when the redemption
value exceeded the value of holding the fund. In contrast, in the case of repo lending, lenders have the
alternative to withdrawal of varying the haircut they demand. There is a close analogy to the discounting of
bank notes during the U.S. free banking era, as discussed by Gorton (see Gary Gorton (1996), "Reputation
Formation in Early Bank Note Markets," Journal of Political Economy, vol. 104 (April), pp. 346-97). In either
case, however, variations in the liquidity premium play an important role in the amount of funding that lenders
are willing to provide against a given set of assets.
17
See Gary B. Gorton and Andrew Metrick (2009), "Securitized Banking and the Run on Repo," Yale
International Center for Finance Working Paper No. 14, July.
Panic-like phenomena occurred in other contexts as well. Structured investment vehicles and
other asset-backed programs that relied heavily on the commercial paper market began to
have difficulty rolling over their short-term funding very early in the crisis, forcing them to look
to bank sponsors for liquidity or to sell assets.18 Following the Lehman collapse, panic
gripped the money market mutual funds and the commercial paper market, as I have
discussed. More generally, during the crisis runs of uninsured creditors have created severe
funding problems for a number of financial firms. In some cases, runs by creditors were
augmented by other types of "runs" - for example, by prime brokerage customers of
investment banks concerned about the funds they held in margin accounts. Overall, the role
played by panic helps to explain the remarkably sharp and sudden intensification of the
financial crisis last fall, its rapid global spread, and the fact that the abrupt deterioration in
financial conditions was largely unforecasted by standard market indicators.
The view that the financial crisis had elements of a classic panic, particularly during its most
intense phases, has helped to motivate a number of the Federal Reserve's policy actions.19
Bagehot instructed central banks - the only institutions that have the power to increase the
aggregate liquidity in the system - to respond to panics by lending freely against sound
collateral.20 Following that advice, from the beginning of the crisis the Fed (like other central
banks) has provided large amounts of short-term liquidity to financial institutions. As I have
discussed, it also provided backstop liquidity support for money market mutual funds and the
commercial paper market and added significant liquidity to the system through purchases of
longer-term securities. To be sure, the provision of liquidity alone can by no means solve the
problems of credit risk and credit losses; but it can reduce liquidity premiums, help restore
the confidence of investors, and thus promote stability. It is noteworthy that the use of Fed
liquidity facilities has declined sharply since the beginning of the year - a clear market signal
that liquidity pressures are easing and market conditions are normalizing.
What does this perspective on the crisis imply for future policies and regulatory reforms? We
have seen during the past two years that the complex interrelationships among credit,
market, and funding risks of key players in financial markets can have far-reaching
implications, particularly during a general crisis of confidence. In particular, the experience
has underscored that liquidity risk management is as essential as capital adequacy and
credit and market risk management, particularly during times of intense financial stress. Both
the Basel Committee on Banking Supervision and the U.S. bank regulatory agencies have
recently issued guidelines for strengthening liquidity risk management at financial institutions.
Among other objectives, liquidity guidelines must take into account the risks that inadequate
liquidity planning by major financial firms pose for the broader financial system, and they
must ensure that these firms do not become excessively reliant on liquidity support from the
central bank.
But liquidity risk management at the level of the firm, no matter how carefully done, can
never fully protect against systemic events. In a sufficiently severe panic, funding problems
will almost certainly arise and are likely to spread in unexpected ways. Only central banks
are well positioned to offset the ensuing sharp decline in liquidity and credit provision by the
private sector. They must be prepared to do so.
The role of liquidity in systemic events provides yet another reason why, in the future, a more
systemwide or macroprudential approach to regulation is needed.21 The hallmark of a
macroprudential approach is its emphasis on the interd