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Why markets can never be made truly safe

Attempts to make the financial system safer may have led to the opposite, as perception of safety in assets can prompt financial panics and crises. The Fed's Bank Term Funding Programme is a new and shocking innovation in collateral policy.

1 min read
  • Perception of safety in assets such as government bonds and property can prompt financial panics.
  • Misjudgment and leveraged bets on assets that are believed to be solid can lead to financial crises.
  • Crises reveal where collateral has been wrongly judged to be safe and can lead to innovations in collateral policy.
  • The Fed's Bank Term Funding Programme is a new and shocking innovation in collateral policy.
  • Attempts to make the financial system safer may have done just the opposite.
Why markets can never be made truly safe
In seeking to prevent a crisis, officials may have planted the seeds of the next one | Finance & economics
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