In fact, although the ongoing crisis was initially dubbed the “subprime crisis” some authors have started to refer to it as the “liquidity crunch of 2007–2008” (Brunnermeier, 2009). 12. Another problem with the repo markets was that a substantial part of “good assets” of the banks got utilized as collateral for short term borrowings.
This raises serious issues as far as the interest of depositors and other unsecured creditors are concerned – in times of crisis the available assets backing them would be greatly reduced. What incentivized this framework was a supposedly market-friendly provision in the US laws which gave the repo contracts an exemption from the bankruptcy proceedings. 2  BIS central bankers’ speeches  Capital 13.