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What You Lend Against

When the Collateral Is Your Own Government

Banks hold the state’s debt, the state stands behind the banks, and each is the other’s weak point.

11 min135 XP available4 challenges

Put these in order

Put the loop in order, starting from a sovereign under pressure.

Earliest cause at the top

  1. Bank capital ratios fall and funding gets harder

  2. Banks holding those bonds take mark-to-market losses

    They hold a great deal of them

  3. The government’s bond yields rise

  4. Banks lend less, and the economy slows

  5. The sovereign looks weaker still

    And the loop starts again

  6. Tax revenue falls and the deficit widens

Answer to continue.