Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System

36 Pages Posted: 16 Aug 2011

See all articles by Zoltan Pozsar

Zoltan Pozsar

International Monetary Fund (IMF)

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Date Written: August 2011

Abstract

Through the profiling of institutional cash pools, this paper explains the rise of the "shadow" banking system from a demand-side perspective. Explaining the rise of shadow banking from this angle paints a very different picture than the supply-side angle that views it as a story of banks’ funding preferences and arbitrage. Institutional cash pools prefer to avoid too much unsecured exposure to banks even through insured deposits. Short-term government guaranteed securities are the next best choice, but their supply is insufficient. The shadow banking system arose to fill this vacuum. One way to manage the size of the shadow banking system is by adopting the supply management of Treasury bills as a macroprudential tool.

Suggested Citation

Pozsar, Zoltan, Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System (August 2011). IMF Working Paper No. 11/190, Available at SSRN: https://ssrn.com/abstract=1910493

Zoltan Pozsar (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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