Duffie examines several policy measures that might alleviate firm-specific and systemic risks related to large dealer banks. He would tend to agree with each of the following EXCEPT to which statement would he most DISAGREE? a) The threat posed by the flight of over-the-counter derivatives counterparties can be lowered by central clearing b) Distress-contingent convertible debt is an innovation that is likely to be destabilizing during periods of financial distress, and regulators should consider curtailing their usage c) Short-term tri-party repos are a particularly unstable source of financing; potential remedies to their risk include a tri-party repo utility, central-bank insurance of tri-party repo transactions, or an emergency bank to be financed by repo market participants d) The most important source of systemic risk is the potential impact of dealer-bank fire sales on market prices and investor portfolio; during the financial crisis, the risk of fire sales was significantly mitigated by lender-of-last resort financing by central banks and by capital injections into dealer banks
Duffie examines several policy measures that might alleviate firm-specific and systemic risks related to large dealer banks. He would tend to agree with each of the following EXCEPT to which statement would he most DISAGREE?
a) The threat posed by the flight of over-the-counter derivatives counterparties can be lowered by central clearing
b) Distress-contingent convertible debt is an innovation that is likely to be destabilizing during periods of financial distress, and regulators should consider curtailing their usage
c) Short-term tri-party repos are a particularly unstable source of financing; potential remedies to their risk include a tri-party repo utility, central-bank insurance of tri-party repo transactions, or an emergency bank to be financed by repo market participants
d) The most important source of systemic risk is the potential impact of dealer-bank fire sales on market prices and investor portfolio; during the financial crisis, the risk of fire sales was significantly mitigated by lender-of-last resort financing by central banks and by capital injections into dealer banks
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