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

36 Pages Posted: 23 Nov 2013

See all articles by Zoltan Pozsar

Zoltan Pozsar

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2013

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.

Keywords: Institutional cash pools, shadow banking, Treasury bills, money, macroprudential

JEL Classification: E4, G2

Suggested Citation

Pozsar, Zoltan, Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System (December 2013). Financial Markets, Institutions & Instruments, Vol. 22, Issue 5, pp. 283-318, 2013. Available at SSRN: https://ssrn.com/abstract=2358723 or http://dx.doi.org/10.1111/fmii.12013

Zoltan Pozsar (Contact Author)

International Monetary Fund (IMF) ( email )

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

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