Leverage? What Leverage? A Deep Dive into the U.S. Flow of Funds in Search of Clues to the Global Crisis

Author/Editor: Tamim Bayoumi ; Ashok Vir Bhatia
Publication Date: June 01, 2012
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper questions the view that leverage should have forewarned us of the global financial crisis of 2007-09, pointing to several gearing indicators that were neither useful portents of the onset of the crisis nor of its ferocity. Instead it shows, first, that the use of ill-suited collateral in the secured funding operations of U.S.-based investment banks was the fatal link between the collapse of structured finance and the global malfunction of funding markets that turbocharged the downdraft; and, second, that this insight (and others) can be decrypted from the Flow of Funds Accounts of the United States.
Series: Working Paper No. 12/162
Subject(s): Banks | Borrowing | Consumer credit | Credit expansion | Financial instruments | Financial sector

Author's Keyword(s): Leverage | securitization | collateral | investment banking
Publication Date: June 01, 2012
ISBN/ISSN: 9781475504712/1018-5941 Format: Paper
Stock No: WPIEA2012162 Pages: 30
US$18.00 (Academic Rate:
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