A Law and Finance Approach
Elgar Financial Law series
Chapter 4: Funding lessons from the 2007–2008 crisis
This chapter analyzes how the 2007–2008 crisis and its resolution crystalized the notion of a liquidity value chain in funding markets. In the heyday of the originate-to-distribute model, banks gained access to new funds, investors profited from structured finance products with investment-grade ratings, retail and corporate borrowers benefited from cheap and ample credit, and securitization promoters collected fees. Beginning in 2007, this funding spiral changed direction, leaving even high-quality borrowers without access to refinancing markets. The rescue efforts of central banks and governments helped to conceptualize the crisis in terms of funding practices, business models, contingent liabilities and the money position. This conceptual legacy would influence post-crisis reforms of financial regulation.
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