The (Other) Deleveraging
July 1, 2012
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Summary
Deleveraging has two components--shrinking of balance sheets due to increased haircuts/shedding of assets, and the reduction in the interconnectedness of the financial system. We focus on the second aspect and show that post-Lehman there has been a significant decline in the interconnectedness in the pledged collateral market between banks and nonbanks. We find that both the collateral and its associated velocity are not rebounding as of end-2011 and still about $4-5 trillion lower than the peak of $10 trillion as of end-2007. This paper updates Singh (2011) and we use this data to compare with the monetary aggregates (largely due to QE efforts in US, Euro area and UK), and discuss the overall financial lubrication that likely impacts the conduct of global monetary policy.
Subject: Banking, Collateral, Expenditure, Financial institutions, Financial statements, Hedge funds, Pension spending, Public financial management (PFM), Securities
Keywords: bank, client collateral, Collateral, collateral Received, deleveraging, Europe, Financial statements, Global, hedge fund, hedge funds, Hong Kong hedge fund, monetary policy, Pension spending, pledged collateral, rehypothecation, remains idle, Securities, securities lending, Taylor rule, velocity of collateral, WP
Pages:
22
Volume:
2012
DOI:
Issue:
179
Series:
Working Paper No. 2012/179
Stock No:
WPIEA2012179
ISBN:
9781475505276
ISSN:
1018-5941
