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Connectedness and ContagionProtecting the Financial System from Panics$
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Hal S. Scott

Print publication date: 2016

Print ISBN-13: 9780262034371

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034371.001.0001

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Liability Connectedness: Money Market Funds and Tri-Party Repo Market

Liability Connectedness: Money Market Funds and Tri-Party Repo Market

(p.53) 5 Liability Connectedness: Money Market Funds and Tri-Party Repo Market
Connectedness and Contagion

Hal S. Scott

The MIT Press

Modern financial markets are a highly complex system of financial institutions with a high degree of interdependence and interconnections. Financial institutions are not only connected through exposure on the asset side of the balance sheet but also on the liability side through funding relationships, referred to as “liability connectedness.” This chapter first examines whether the connectedness of money market funding to banks caused a problem in the crisis, concluding that it did not. It then examines a possible future source of connectedness, the tri-party repo market. While this market could cause systemic risk, it has been altered in significant ways to avoid this possibility.

Keywords:   liability connectedness, money market funds, tri-party repo market, financial markets, financial institutions, monetary policy, money market

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