Sergio Nicoletti-Altimari, Carmelo Salleo, 11 June 2010

The global crisis ruthlessly exposed the weakness of the market for liquidity. This column suggests that banks should issue securities with a “Roll-Over Option Facility” that would allow banks to keep funds if there is turmoil in liquidity markets. It adds that these facilities would help reallocate liquidity risk outside the banking sector, thus reducing the probability and severity of a crisis.

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