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Daily Archives: September 18, 2010

Regulating the Shadow Banking System

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Governor Daniel K. Tarullo at the Brookings Panel on Economic Activity, Washington, D.C. September 17, 2010 – Comments on “Regulating the Shadow Banking System

  • Broadly speaking, threats to financial stability can arise in two ways: first, through the rapid deterioration or failure of a large institution with leverage sufficient to have widespread knock-on effects and, second, through the breakdown of a significant market in which large numbers of leveraged actors depend upon similar sources of liquidity and, importantly, backup liquidity in periods of stress. These two sources of systemic risk can be, and usually are, related. In fact, the severity of the recent crisis might be explained as an explosive combination of the two. But the different origins of risk call for different or, perhaps more precisely, complementary, policy responses.”
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