In the most recent crisis, retail runs – depositors lining up in the streets – were thankfully rare because of deposit insurance and other changes in our financial system. 4 Although ordinary small depositors by and large did not run, we nevertheless experienced the equivalent of runs on the network of nonbank financial institutions that has come to be called the shadow banking system.
Thus, the credibility lost in the crisis is gradually rebuilt without sacrificing the necessary discretion to address the contingencies inherent to an economy that is in transition towards its long-term equilibrium. To preserve the money market equilibrium, we apply a deep monetary absorption strategy coupled with reserve accumulation for prudential purposes.