(2) The liquidity problems affecting money markets in 2007-08 have been described as “a run on repo”. Describe in detail how a bank run arises. Explain the liquidity problems that affected the money markets in 2007-08, drawing analogies between these and a traditional bank run. Throughout your essay take care to explain the nature of the financial instruments and markets you discuss.
Readings:
Diamond, Douglas W. (2007), “Banks and Liquidity Creation: A Simple Exposition of the Diamond-Dybvig Model,” Federal Reserve Bank of Richmond Economic Quarterly, 93(2), pp. 189-200.
Gorton, G., and A. Metrick (2012), “Getting Up to Speed on the Financial Crisis: A One-Weekend-Reader’s Guide,” Journal of Economic Literature, 50(1), pp. 128-150.
Gorton, G., and A. Metrick (2012), “Securitized Banking and the Run on Repo,” Journal of Financial Economics, 104(3), pp. 421-560.
Avoid long quotations.
Use quotations for a given purpose, such as strengthening your argument. Do not let quotations be a substitute for your own exposition. Do not be afraid to use your own words to state an argument.
Structure matters.
Make sure your paper is well organised and that you have a coherent piece of work. Divide your paper in logically coherent sections, e.g.:
• Introduction: Set out clearly from the beginning the issues that you are going to discuss. What is this paper about all about? Set out briefly how your arguments will unfold and how you plan to structure your piece of work.
• In the sections following your introduction, analyse your arguments clearly and try to keep a logical sequence. Refer to relevant literature in making your arguments, and include all references in the bibliography at the end of the paper. Do not be afraid to use your own examples in order to enhance a specific argument. Do not be afraid to include technical material; if you use equations, always explain the relevant variables at first usage.
• Conclusion: Give a brief summary of your paper. Say what exactly you analysed, highlight the most important aspects and summarise your main conclusions. Comment on any issues that you feel deserve further exploration.
• Always provide bibliographical references, with full details (e.g. journal title, volume and page numbers; working paper series; book publisher and location).
Presentation matters.
Pay attention to style and layout. Use word processing and double line-spacing with a 12 point font. Write in coherent, grammatically correct English and check spelling.
Keep to the word limit. Term papers should not exceed 3000 words.
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