# Based on a May 1, 2016 speech by William C. Dudley # "Marketing and Funding Liquidity: An Overview" # "I would define market liquidity as the cost -- both in expense and time -- of buying or selling an asset for cash." # "By funding liquidity, I mean the ability of a financial entity to raise cash by borrowing on either an unsecured or a secured basis." Shadow Bank: your assets are Market Liquidity and your liabilities are Funding Liquidity Dealer: your assets are and your liabilities are . Cash Pool: your assets are and your liabilities are . # As Market liquidity increases, funding liquidity also increases. The money supply increases. Money is created by asset valuations. Shadow Bank: your assets are Assets, and your liabilities are Funding, . Dealer: your assets are Funding, Assets and your liabilities are Assets, Funding. Cash Pool: your assets are Assets, and your liabilities are Funding, . Shadow Bank: your assets are Insurance, and your liabilities are Fees, . Dealer: your assets are Fees, Insurance and your liabilities are Insurance, Fees. Cash Pool: your assets are , Fees, and your liabilities are , Insurance. Cash Pool: your liabilities are Deposits. # Shadow Bank pays Fees to Dealer for Insurance. # Dealer pays Fees to Cash Pool for Insurance. Show Shadow Bank and Dealer balance sheets side-by-side. Show Dealer and Cash Pool balance sheets side-by-side. # When insurance is triggered: # Cash Pool pays Insurance to Dealer. # Dealer pays Insurance to Shadow Bank. # Cash Pools stopped paying, Dealers failed, Shadow Bank got no insurance (and/or they didn't buy enough Insurance). #Fed buys Assets from Dealers, Shadow Banks. #Fed gives Funding to Dealers, Shadow Banks. Fed: your assets are Assets and your liabilities are Funding. #Fed ensures Cash Pool deposits do not "break the buck."