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3. Importance of Securitization 3

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6. The Financial Crisis 6

7. Run on the Repos 7

8. The Financial Crisis 8

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10. Regression Results Roughly same results for repo spreads. – Rise in LIB-OIS (proxy for counterparty credit risk in banking system) leads to increase in spreads. Repo haircuts depend on expected volatility in underlying collateral – More expected volatility implies larger haircuts. 10

11. Implications Problems in sub-prime market led to higher LIB- OIS. Higher LIB-OIS lead to larger credit spreads on securitized bonds and repos. Higher credit spreads led to more uncertainty about bank solvency and lower values for repo collateral. Concerns about liquidity of bonds used for repo collateral led to rising repo haircuts (equivalent to a bank run). 11