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Author/Editor:
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Manmohan Singh
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Publication Date:
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July 01, 2012
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Electronic Access:
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Free Full text
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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
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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.
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Order a print copy
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Series:
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Working Paper No. 12/179
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Subject(s):
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Banks | Debt reduction | Hedge funds | Liquidity | Monetary aggregates | Nonbank financial sector
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Author's Keyword(s):
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Pledged collateral | velocity of collateral | rehypothecation | monetary policy | deleveraging | hedge funds | securities lending | Taylor rule |
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