'Puts' in the Shadow

Abstract

In the aftermath of the Lehman crisis, payouts (i.e., taxpayer bailouts) in various forms were provided by governments to a variety of financial institutions and markets that were outside the regulatory perimeter - the "shadow" banking system. Although recent regulatory proposals attempt to reduce these "puts", we provide examples from non-banking activities within a bank, money market funds, Triparty repo, OTC derivatives market, collateral with central banks, and issuance of floating rate notes etc., that these risks remain. We suggest that a regulatory environment where puts are not ambiguous will likely lower the cost of bail-outs after a crisis.

Keywords: Shadow Banking, Money Market Funds, Tri-party Repo, Otc Derivatives, Ccps, Floating Rate Notes, Collateral, Sifis, Sibs, Non-banks, Banking Systems, Financial Institutions, Nonbank Financial Sector, Shadow Economy, General Financial Markets

JEL Classification: E58, G15, F33, K22