Consequently, investors remain ignorant of the precise condition of the intermediary to whom they are lending, or of the securities that back their loan. However, once conditions worsen, suddenly the nature of the debt changes, in that the people and institutions that hold the debt  9  See Greenwood, Hansen, and Stein (2010, 2015), Krishnamurthy and Vissing-Jorgensen (2012), and Carlson et al. (2014). 10  This finding is further supported by the finding that the share of safe assets in the economy has been relatively steady since the 1950s. Others confirm those results and show that the substitution of privately-created shortterm debt for the Treasury’s supply of short-term debt has been a consistent feature of the U.S. financial system since 1875. See Gorton, Lewellen, and Metrick (2012), and Krishnamurthy and Vissing-Jorgensen (2015). 11  See Dang, Gorton, and Holmstrom (2009, 2012). 6  BIS central bankers’ speeches  realize they must expend resources to monitor their borrower. But, at that point, they are not in a good position to monitor that firm, so they simply refuse to extend the loan to it when the loan comes due, greatly amplifying the initial cause of the need to monitor further. This has the effect of the old-style bank run: suddenly the financial intermediary is caught short of the ability to finance its portfolio, and must reduce its indebtedness quickly, again, possibly triggering fire sales and creating negative externalities to others.

CCAR and CLAR are applied to bank holding companies, firms that now include many of the broker-dealers and other nonbank intermediaries involved in the market-based system of intermediation. Both of these forwardlooking assessments attempt to gauge the vulnerability to a crisis by examining the capital and liquidity resources the largest bank holding companies have to withstand the stresses that accompany a severe economic downturn. 8  BIS central bankers’ speeches  References Adrian, Tobias, and Hyun Song Shin. 2008. “Liquidity, Monetary Policy, and Financial Cycles.” Federal Reserve Bank of New York Current Issues in Economics and Finance 14, no. 1 (January). Adrian, Tobias, and Hyun Song Shin. 2010. “Liquidity and Leverage.” Journal of Financial Intermediation 19, no. 3: 418–437. Adrian, Tobias, and Hyun Song Shin. 2014. “Procyclical Leverage and Value-at-Risk.” Review of Financial Studies 27, no. 2 (February): 373–403. Adrian, Tobias, and Nina Boyarchenko. 2012. “Intermediary Leverage Cycles and Financial Stability.” Federal Reserve Bank of New York Staff Reports, no. 567, August. Adrian, Tobias, and Nina Boyarchenko. 2013. “Liquidity Policies and Systemic Risk.” Federal Reserve Bank of New York Staff Reports, no.661 (December). Adrian, Tobias, and Nina Boyarchenko. 2014. “Liquidity Policies and Systemic Risk.” Federal Reserve Bank of New York Liberty Street Economics blog, April. Adrian, Tobias, Nina Boyarchenko, and Hyun Song Shin. 2015. “The Cyclicality of Leverage.” Federal Reserve Bank of New York Staff Reports, no.743 (October). Adrian, Tobias, Emmanuel Moench, and Hyun Song Shin. 2010. “Macro Risk Premium and Intermediary Balance Sheet Quantities.” International Monetary Fund Economic Review 58 (September): 179–207.