In the traditional model, banks take short term deposits and other sources of funds and use them to fund longer term loans to businesses and consumers. They originate or warehouse loans, and then quickly sell them. By doing so, they are able to remove risk from their balance sheet and shift the risk off the balance sheet and to other parts of the financial system.

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False

The boom ("bubble") in the housing markets began building in 2001, particularly after the terrorist attacks of 9/11. The immediate response by regulators to the terrorist attacks was to create stability in the financial markets by providing liquidity to FIs. For example, the Federal Reserve raised the short-term money market rate that banks and other financial institutions pay in the Federal funds market.

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True

False