The Primary Dealer Credit Facility – instituted on an emergency basis immediately after the failure of Bear Stearns – provided emergency lending to dealers, injected liquidity into the system, and provided a backstop that reassured markets. This public-sector support prevailed where implicit private-sector support had come into question, and helped stabilize the triparty repo market.
We undertook a series of actions to deal with the problem; most notably we sought the assistance of the Reserve Bank of India (RBI), which has first-hand knowledge of the matter. The RBI team’s recommendations range from the reinforcement of Know Your Customer procedures and due diligence in banks, the setting up of dedicated cells to gather market intelligence, to enhanced coordination among regulators.