Bank practices undermined liquidity, says BIS
Practices such as securitisation, dependence on the money markets and use of collateral increased the danger of a liquidity shortfall during the credit crisis, according to a report released by the Bank of International Settlements (BIS).
The BIS said banks had become reliant on the money markets, which tend to be more volatile than traditional retail deposits as a source of liquidity. Using securitisation, especially with backstop provisions, also laid them open to liquidity risk, as did the
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