Consequences for a shadow bank

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Gary Gorton, a professor at Yale University, has compared repurchase agreements used by shadow banks to bank deposits in commercial banks. He notes that: "If the depositors become concerned that their deposits are not safe, they can withdraw from the bank by not renewing their repo."

a. In what sense is a repurchase agreement like a bank deposit?

b. What would be the consequences for a shadow bank if "depositors" failed to renew their repos?

Reference no: EM131304553

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