Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Then something even worse began to happen. The uncertainty spread from individual weak banks to the entire system. First in the spring of 2008 and then in June, the haircuts on bilateral repo took a severe step up across the board, for all asset classes, for all parties.15 This meant that the amount of capital that was required to hold the outstanding stock of bonds leaped upward, across the entire banking system. Repo in US Treasurys and GSE-backed mortgage-backed securities was the least badly affected. As top-quality collateral they were reserved mainly for use in triparty repo overseen by JPMorgan Chase and Bank of New York Mellon. As long as a counterparty remained in good standing and had top-quality collateral, that repo market remained open and stable. But in the interbank bilateral repo