LO 77.1: Describe the links between banks and capital markets.

LO 77.1: Describe the links between banks and capital markets.
Market finance has been an influential force in the financial system. Market finance can either connect borrowers and investor directly, or it can connect them through a bank intermediary in the wholesale market. A well-known example of how market finance can affect financial institutions is the case of Northern Rock. At the onset of the most recent financial crisis, Northern Rock, a British bank, collapsed in 2007 following a run on the bank by depositors. The run was preceded by a forced deleveraging by wholesale creditors in the capital markets. The key takeaway is that the link between banks and capital markets is now global.
Fo r c e d D e l e v e r a g in g a n d C o v e r e d In t e r e s t Pa r it y

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