IMF Working Papers

The Nonbank-Bank Nexus and the Shadow Banking System

Author/Editor:

Manmohan Singh ; Zoltan Pozsar

Publication Date:

December 1, 2011

Electronic Access:

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Summary:

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.

Series:

Working Paper No. 2011/289

Subject:

Asset and liability management Asset management Banking Collateral Commercial banks Financial institutions Financial services Securities Shadow banking

Frequency:

Monthly