Brothers in September 2008. This led to a direct default on commercial paper issued by Lehman Brothers, $785 million of which was held by the Reserve Primary Fund-one of the largest MMMFs, with more than $65 billion in assets. Needless to say, the news of exposure triggered a run on this fund and quickly spread to other MMMFs. To stem the run on MMMFs, the U.S. Treasury announced a temporary deposit insurance covering all money market instruments only three days aeftr the collapse of Lehman.
1, 2, 11, 14 See Adrian, Ashcraft, Boesky and Pozsar.
3 Strictly speaking, this description fits commercial banks, which along with thrift institutions (savings and loans and credit unions) make up the set of depository institutions in the U.S.
4 In addition, credit intermediation involves “brokerage,” whereby the bank also reduces preand post-contractual informational asymmetries between the borrower and the lender. Note that this brokerage function is not necessarily exclusive to credit intermediation because many other intermediaries, such as used-car dealers, perform a similar function. For more, see work by Greenbaum and Thakor.
5 This key insight developed by Bryant and formal - ized in Diamond and Dybvig is arguably the most celebrated work in banking theory.
6 See Diamond and Dybvig.
7 See Wheelock and Wilson.
8 See Morrison and White.
9 See Admati, DeMarzo, Hellwig and Pfleiderer.
10 See Anderson and Gascon for details on MMMFs and ABCPs.
12 The evidence is somewhat diferent for the triparty repo market. See Copeland, Martin and Walker for details.
13 See Gorton and Souleles.
Admati, Anat R.; DeMarzo, Peter M.; Hellwig, Martin F.; and Pfleiderer, Paul. “Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity Is Not Expensive.” Research Papers 2065, Stanford University Graduate School of Business, 2010.
Adrian, Tobias; Ashcraft, Adam; Boesky, Hayley; and Pozsar, Zoltan. “Shadow Banking.” Staf Reports 458, Federal Reserve Bank of New York, July 2010.
Anderson, Richard G.; and Gascon, Charles S. “The Commercial Paper Market, the Fed, and the 2007- 2009 Financial Crisis.” Federal Reserve Bank of St. Louis Review, Vol. 91, No. 6, November 2009, pp. 589-612. [OpenAIRE]