All the factors listed above contributed to systemic failure. Liquidity risk was not on the radar of
regulators, and was a second priority for risk managers, and most of the focus was on capital
adequacy as liquidity was thought to be an unlikely problem. Liquidity, regardless of capital
adequacy, was the primary cause of failure of a number of institutions during the crisis.
Similarly, stress tests proved to be much milder than the shocks that were actually experienced, and
the strategy of 'originate and distribute' implied that the mortgage and other debt originators had no
interest in any due diligence as they intended to package and sell the debt to other investors.
Therefore Choice 'd' is the correct answer.
