Moreover, these assets taken as collateral were illiquid and lenders failed to factor in this risk. This combined with excessive leverage accentuated the vulnerability. 18.
The excessive dependence of entities on wholesale funding markets such as repo or other collateralised markets is an issue of systemic concern since one, it accentuates systemic procyclicality through haircuts/margins and two, the leverage loop that builds through these markets in high liquidity periods induces rigidity and gets entrenched into funding models of entities.