Which of the following was the main reason for increased counterparty risk in the shadow banking system prior to the financial crisis of 2007-2009?

Question

Quizplus · Accepted Answer

Increased leverage, or taking on more debt relative to assets, was a major contributor to increased counterparty risk in the shadow banking system. This meant that borrowers were more likely to default on their obligations, leading to greater uncertainty and instability in the financial system. Other factors, such as firms borrowing long-term for short-term investments, also contributed to the problem, but increased leverage was likely the primary driver of increased counterparty risk. Government insuring money market deposits and trading of derivatives on exchanges were not significant factors in this context.

Which of the Following Was the Main Reason for Increased