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In a paper presented at the National Bureau of Economic Research (NBER) Macro Annual Conference (April 20-21, 2012), Adrian, Colla and Song Shin (2012) present four stylized facts about financial frictions: In a contraction, bank loans are reduced but bond financing increases to make up for most of the gap. For example, during the 2007-2009 crisis, the number of bank loans issued in the USA declined by 75% whereas the number of bonds increased by two fold. Credit spreads (= risk premium) increase in a contraction Bank lending changes dollar for dollar with a change in debt, with equity being "sticky". So, credit supply by banks is the consequence of their choice of leverage. (cf. figure 1 and 2) Bank leverage is procyclical figure 1: Investment Banks: change in equity and debt in relation to the change in assets figure 2: Commercial Banks: change in Equity and Debt in relation to a change in assets They then develop a model of financial intermediation that

In March, the Chairman of the Federal Reserve (ie the US Central Bank) gave a series of four lectures about the Federal Reserve system and the Financial Crisis to students of Georges Washington University. I have enclosed the videos of these classes. Dr. Bernanke, who is also a prominent academic researcher, is very skilled at explaining very complex problems with easy words. So, even non economists will find these lectures accessible and useful to understand the sequence of events that led to a global financial crisis and how the Federal Reserve responded to it. Let me give you a few extracts and comments that I found particularly worth highlighting: The three pillars of central bank action are: Monetary policy (setting interest rates) Provision of liquidity (lender of last resort) Financial regulation and supervision (shared with other agencies) "We did not foresee that declining house prices would trigger a financial crisis." This is an honest but clear