In short, the financial industry in the years preceding the crisis had been transformed into one that was highly susceptible to runs on the short-term, uninsured cash equivalents that funded longer-term extensions of credit.2 Designing and implementing a policy response in light of the vulnerabilities of short-term wholesale funding markets that were revealed in the 2007–09 crisis is an integral part of post-crisis reform.
The key question is how to balance the important role these markets have come to play in funding economic activity with the need to contain the destabilizing risks of runs in these same markets.