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Lou Crandall & Joseph Wang: A Monetary Plumbing Masterclass

Forward Guidance

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The Change in Liquidity Management in the Banking System

In a stress event, there's no such thing as a cash equivalent. So with that meant is the banks had to manage liquidity by accumulating secondary reserves. Banks were borrowing from each other to the tune of hundreds of billions of dollars in the overnight Fed funds market and that provided them with liquidity because that money came back first thing the next morning unless it didn't. Today liquidity management is borderline an extension of the compliance department.

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