IMF Working Papers

Puts in the Shadow

Author/Editor:

Manmohan Singh

Publication Date:

September 1, 2012

Electronic Access:

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Summary:

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.

Series:

Working Paper No. 2012/229

Subject:

Asset prices Banking Collateral Commercial banks Financial institutions Financial services Prices Shadow banking Systemically important financial institutions