Thus, what we might refer to as the prototypical form of shadow banking presented the kind of risk associated with traditional banking prior to the creation of deposit insurance – that of destabilizing short-term creditor runs that lead to defaults and asset fire sales. Bank sponsorship contributed to the illusion that the shadow banks’ short-term liabilities were virtually as good as cash.
You have to speak sparingly enough for your message to remain solid and credible. And central bankers obviously have to be careful in sending out signals because financial markets and analysts are watching and will draw certain conclusions in order to decipher what they should focus their efforts on and where they should move their funds to. Let me briefly touch on France.