The Nonbank-Bank Nexus and the Shadow Banking System

19 Pages Posted: 12 Dec 2011

See all articles by Zoltan Pozsar

Zoltan Pozsar

International Monetary Fund (IMF)

Manmohan Singh

International Monetary Fund (IMF)

Date Written: December 2011

Abstract

The present way of thinking about financial intermediation does not fully incorporate the rise of asset managers as a major source of funding for banks through the shadow banking system. Asset managers are dominant sources of demand for non-M2 types of money and serve as source collateral ‘mines’ for the shadow banking system. Banks receive funding through the re-use of pledged collateral ‘mined’ from asset managers. Accounting for this, the size of the shadow banking system in the U.S. may be up to $25 trillion at year-end 2007 and $18 trillion at year-end 2010, higher than earlier estimates. In terms of policy, regulators will need to consider the re-use of pledged collateral when defining bank leverage ratios. Also, given asset managers’ demand for non-M2 types of money, monitoring the shadow banking system will warrant closer attention well beyond the regulatory perimeter.

Keywords: Asset management, Banking systems, Capital markets, Financial intermediation, Nonbank financial sector

Suggested Citation

Pozsar, Zoltan and Singh, Manmohan, The Nonbank-Bank Nexus and the Shadow Banking System (December 2011). IMF Working Paper No. 11/289, Available at SSRN: https://ssrn.com/abstract=1971440

Zoltan Pozsar

International Monetary Fund (IMF) ( email )

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

Manmohan Singh

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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