How might the existence of the government safety net lead to increased concentration in the banking industry?
Answer to relevant QuestionsYou are the lender of last resort and an institution approaches you for a loan. You assess that the institution has $800 million in assets, mostly in long-term loans, and $600 million in liabilities. The institution is ...Shadow banks typically fund their assets by issuing liabilities of shorter maturity that are close substitutes for bank deposits. The maturity mismatch between their assets and liabilities creates rollover risk that can ...Provide arguments for why you think the financial crisis of 2007-2009 did or did not compromise the independence of the Federal Reserve. Suppose the government is heavily in debt. Why might it be tempting for the fiscal policymakers to sell additional bonds to the central bank in a move that it knows would be inflationary? Why did the sovereign debt problem of Greece – which accounts for less than 2 percent of euro-area GDP–, threaten the banking system throughout the euro area?
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