How the Financial System Works

How the Financial System Works - A Map of Money Flows in the Global Financial Ecosystem -

by Zoltan Pozsar

Senior Adviser Office of Financial Research, U.S. Treasury

An Appendix to the paper “Shadow Banking: The Money View” (Pozsar, 2014)

1

1. The Hierarchy of Money. 2. The Hierarchy of Access. 3. The Hierarchy of Uses..

4. The Dealer Eco-System. 5. The Macro Perspective. 6. Policy Implications... 2

Four core institutions:

Central Bank (Federal Reserve)

Central bank,…

Source: Pozsar (2014)

3



Central bank, banks (small and big),…

Banks (retail)

Banks (wholesale)


4



Dealer Banks

Banks (retail)

Dealer Banks

Central bank, banks (small and big), dealers,…

Banks (wholesale)


5



Dealer Banks

Central bank, banks (small and big), dealers and money funds.

Money Funds


Banks (retail)

Dealer Banks

Banks (wholesale)

Money Funds

6

Four core money claims: Currency,…


Dealer Banks

Currency

Money Funds


Banks (retail)

Dealer Banks

Banks (wholesale)

Money Funds

7 Liabilities

Four core money claims: Currency, deposits,…


Dealer Banks

Currency

Money Funds

Banks (retail)

Dealer Banks

Deposits (o/n)

Banks (wholesale)

Money Funds

Deposits (o/n)


8 Liabilities

Four core money claims: Currency, deposits, repos,…


Dealer Banks

Currency

Repos (o/n)

Money Funds

Banks (retail)

Dealer Banks

Deposits (o/n)

Banks (wholesale)

Repos (o/n)

Money Funds

Deposits (o/n)


9 Liabilities

Four core money claims: Currency, deposits, repos and constant NAV shares.


Dealer Banks

Currency

Repos (o/n)

Money Funds CNAVs (o/n)

Banks (retail)

Dealer Banks

Deposits (o/n)

Banks (wholesale)

Money Funds

Deposits (o/n)


Repos (o/n)

CNAVs (o/n)

10 Liabilities

Two categories of assets:


Public assets:

Dealer Banks

Currency Public Assets

T-Bills – Treasury bills T-Notes – Treasury notes

Repos (o/n)

Money Funds

Assets

CNAVs (o/n)

Banks (retail)

Private assets: Private Assets

P-Bills - CD, CP, ECP, etc. P-Notes - bonds, RMBS, ABS


Dealer Banks

Deposits (o/n)

Banks (wholesale)

Repos (o/n)

Money Funds

Deposits (o/n)

CNAVs (o/n)

11 Liabilities



Public assets:

T-Notes

Currency

Public Assets

T-Bills – Treasury bills T-Notes – Treasury notes

Dealer Banks Repos (o/n)

Money Funds

Assets

CNAVs (o/n)

Banks (retail)




Dealer Banks

Deposits (o/n)

Banks (wholesale)

Repos (o/n)

Money Funds

Deposits (o/n)

CNAVs (o/n)

12 Liabilities



Public assets:

Currency

T-Bills …

T-Notes

Dealer Banks (government desk)

Public Assets

T-Bills – Treasury bills T-Notes – Treasury notes T-Repos – Treasury repos

T-Repos (o/n)

T-Notes

Money Funds

Assets

CNAVs (o/n)

Banks (retail)




Dealer Banks

Deposits (o/n)

Banks (wholesale)

Repos (o/n)

Money Funds

Deposits (o/n)

CNAVs (o/n)

13 Liabilities



Public assets: Public Assets

T-Bills – Treasury bills T-Notes – Treasury notes T-Repos – Treasury repos T-CNAVs – Treasury CNAVs

T-Bills

Money Funds (government-only)

Assets

Banks (retail)

Private Assets


T-Repos (o/n)

T-Notes

T-Bills

Private assets:


Currency

…

T-Notes


T-CNAVs (o/n)

Dealer Banks

Deposits (o/n)

Banks (wholesale)

Repos (o/n)

Money Funds

Deposits (o/n)

CNAVs (o/n)

14 Liabilities





T-Bills


Assets

Banks (retail)

Private Assets


T-Repos (o/n)

T-Notes

T-Bills

Private assets:


Currency

…

T-Notes


P-Loans

T-CNAVs (o/n)

Dealer Banks

Deposits (o/n)

Banks (wholesale)

Repos (o/n)

Money Funds

Deposits (o/n)

CNAVs (o/n)

15 Liabilities



Public assets:

Currency

T-Bills …

T-Notes


Public Assets


T-Notes


Assets

T-Bills

Banks (retail)

Private assets:

P-Loans

P-Notes

T-CNAVs (o/n)

Dealer Banks

Deposits (o/n)

Banks (wholesale)

…

Private Assets


T-Repos (o/n)

Repos (o/n)

Money Funds

Deposits (o/n)

CNAVs (o/n)

P-Loans


16 Liabilities





T-Bills


Banks (retail) Deposits (o/n)

P-Bills

P-Repos (o/n)

P-Notes

Banks (wholesale) P-Notes …

Private Assets

P-Loans

T-CNAVs (o/n)

Dealer Banks (credit desk)

…

Assets

T-Bills


T-Repos (o/n)

T-Notes

Private assets:

P-Repos – private repos

Currency

…

T-Notes


Money Funds

Deposits (o/n)

CNAVs (o/n)

P-Loans


17 Liabilities





T-Bills



P-Bills

P-Repos (o/n)

P-Notes


Private Assets

P-Loans

T-CNAVs (o/n)


…

Assets

T-Bills


T-Repos (o/n)

T-Notes

Private assets:

P-Repos – private repos P-CNAVs – private CNAVs

Currency

…

T-Notes


Money Funds (prime)

Deposits (o/n)

P-Bills

P-CNAVs (o/n)

P-Loans


18 Liabilities

Currency

T-Repos (o/n)

T-Notes


Assets

T-Bills

Banks (retail) P-Loans

T-CNAVs (o/n)


Deposits (o/n)

P-Bills

P-Repos (o/n)

P-Notes


Private Assets

T-Bills …

T-Notes


Public Assets

Banks form the backbone of the payments system and facilitate the net payments (via deposits) of all entities that are lower in the system-hierarchy, including dealers and money funds.


…

Deposits’ special function:

Money Funds (prime)

Deposits (o/n)

P-Bills

P-CNAVs (o/n)

P-Loans


19 Liabilities

Central Bank (Federal Reserve) Currency


Assets

T-Bills

Banks (retail) P-Loans

T-CNAVs (o/n)


Deposits (o/n)

P-Bills

P-Repos (o/n)

P-Notes


Private Assets

T-Repos (o/n)

T-Notes

For every institution, money is something different. This is the intra-system hierarchy of money…

T-Bills …

T-Notes

Public Assets

What happens with net payment surpluses at the end of the day? Through what instruments are money balances stored within the system?


…

Storing payment surpluses:

Money Funds (prime)

Deposits (o/n)

P-Bills

P-CNAVs (o/n)

P-Loans


20 Liabilities

Reserves at the Fed are money for banks.


Public Assets

T-Notes


Currency Reserves (o/n)

T-Bills …

Intra-system money hierarchy:

T-Notes



P-Bills

P-Repos (o/n)

…

Reserves (o/n)

T-CNAVs (o/n)


…

Assets

T-Bills

P-Loans

P-Notes

Banks (wholesale) Reserves (o/n)

Money Funds (prime)

Deposits (o/n)

P-Bills

P-CNAVs (o/n)

…

Private Assets

T-Repos (o/n)

P-Loans


21 Liabilities

T-Notes

Public Assets

o/n T-Repos with wholesale banks are money for dealers.




T-Repos (o/n) T-Notes


Banks (retail)

P-Bills

P-Repos (o/n)

…

Deposits (o/n)

P-Loans

P-Notes

Banks (wholesale) T-Repos (o/n)

P-Bills

…

Reserves (o/n)

Money Funds (prime)

…

Private Assets

Reserves (o/n)

T-CNAVs (o/n)


…

Assets

T-Bills


T-Repos (o/n)

…


P-Loans

Deposits (o/n)

P-CNAVs (o/n)

22 Liabilities

o/n T-Repos w/ dealers are money for government MFs.


Public Assets

T-Notes



T-Repos (o/n)

T-Repos (o/n)

…


T-Notes

Money Funds (government-only) T-CNAVs (o/n)

…

T-Repos (o/n)

Banks (retail)


P-Bills

P-Repos (o/n)

…

Deposits (o/n)

P-Loans

P-Notes

Banks (wholesale) T-Repos (o/n)

P-Bills

…

Reserves (o/n)

Money Funds (prime)

…

Private Assets

Reserves (o/n)


…

Assets

T-Bills

P-Loans

Deposits (o/n)

P-CNAVs (o/n)

23 Liabilities

o/n P-Repos with dealers are money for prime MFs.


Public Assets

T-Notes



T-Repos (o/n)

T-Repos (o/n)

…


T-Notes

Money Funds (government-only) T-CNAVs (o/n)

…

T-Repos (o/n)

Assets

T-Bills

Banks (retail)


…

P-Repos (o/n)

…

Deposits (o/n)

P-Loans

P-Notes

Banks (wholesale)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n)

P-Repos (o/n)

Money Funds (prime)

…

Private Assets

Reserves (o/n)


P-Loans

Deposits (o/n)

P-Bills

P-CNAVs (o/n)

24 Liabilities

Public Assets

T-Notes


T-Repos (o/n)


Assets

?

T-Bills


…

P-Repos (o/n)

…

Deposits (o/n)

P-Loans

P-Notes

Banks (wholesale)

P-Repos (o/n)

Money Funds (prime)

…

P-Repos (o/n)

…

T-Repos (o/n)

…

Reserves (o/n)

T-CNAVs (o/n)

…

T-Repos (o/n)

Banks (retail)

Private Assets

T-Repos (o/n) T-Notes

Reserves (o/n)



…


P-Loans

Deposits (o/n)

P-Bills

P-CNAVs (o/n)

25 Liabilities

Central Bank (Federal Reserve) T-Notes


T-Repos (o/n)

T-Repos (o/n)

T-Notes

Sovereign (U.S. Treasury) Reserves (o/n)


T-Bills (o/n)

T-Repos (o/n)

T-CNAVs (o/n)

…

We do not typically think of her as a bank, but the sovereign is also capable of absorbing money demand.

Public Assets

Without the sovereign the money matrix is incomplete.


…

The sovereign as a “bank”:

Assets

T-Bills

Banks (retail)


…

P-Repos (o/n)

…

Deposits (o/n)

P-Loans

P-Notes

Banks (wholesale)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n)

P-Repos (o/n)

Money Funds (prime)

…

Private Assets

Reserves (o/n)


P-Loans

Deposits (o/n)

P-Bills

P-CNAVs (o/n)

26 Liabilities


Assets

Breakable and negotiable claims that do not trade at par in real time (puts prior to maturity subject to penalty, market risks).

…

T-Repos (o/n)

T-Notes

T-Repos (term)

T-Bills (o/n)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

T-CNAVs (o/n)


…

…

P-Repos (o/n)

…

P-Repos (o/n)

…

Deposits (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n)

Money Funds (prime)

…

Private Assets

T-Repos (o/n)


Banks (retail) Reserves (o/n)



…

Par at maturity in the near term (o/n < 1 yr).

Public Assets

T-Notes


…

Par at maturity versus par on demand claims.


…

What are money-like claims?

P-Loans

Deposits (term)

P-Bills (term)

P-CNAVs (o/n)

27 Liabilities

T-Notes


Sovereign (U.S. Treasury) T-Bills (o/n)

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (retail)

<

T-CNAVs (o/n)


…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds (prime)

…

Private Assets

T-Repos (o/n)


Reserves Deposits (o/n) < (o/n)


<

T-Notes

…

Assets

Reserves (o/n)

T-Repos (o/n)

…

Public Assets

Take more [o/n liquidity], give less [o/n liquidity] and put the rest in term…


…


…

The alchemy of banking:

P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

28 Liabilities

<

T-Repos (o/n)

T-Notes

T-Repos (term)


T-Bills (o/n)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (retail)

<

T-CNAVs (o/n)


…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…

Reserves Deposits (o/n) < (o/n) P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds (prime)

…

Private Assets

T-Repos (o/n)

…

Reserves (o/n)

It is the type and mix of these backups (or “puts”) that determine the strength of money claims’ promise of at par on demand liquidity.


Sovereign (U.S. Treasury)

Assets

Different institutions have different sets of backups for survival if o/n liquidity runs out.


…

…this exposes “banks” to rollover risks, and if there is a run you ask: “do I have enough [o/n] liquidity to survive?”.

T-Notes Public Assets

Take more [o/n liquidity], give less [o/n liquidity] and put the rest in term…


…


…

The alchemy of banking:

P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

29 Liabilities

Reserves (o/n)

Assets

In a panic, this will likely spiral into a fire sale.

Sovereign (U.S. Treasury) T-Bills (o/n)

T-Repos (o/n)

T-Notes

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (retail)

<

T-CNAVs (o/n)


…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds (funding/market)

…

Private Assets

<




T-Repos (o/n)

…

If this option is exhausted money funds must sell.


…

Public Assets

T-Notes


…

Money funds can borrow only limited amounts.


…

Hierarchy of liquidity puts:

P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

30 Liabilities


Assets

In a panic, this will likely spiral into a fire sale too.

T-Bills (o/n)

T-Repos (o/n)

T-Notes

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (retail)

<

T-CNAVs (o/n)

Dealer Banks (funding/market)

…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <


…

Private Assets

<




T-Repos (o/n)

…


…

If this option is exhausted dealers must sell too.

T-Notes


…

Public Assets

Dealers have more room to borrow against their assets.


…


P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

31 Liabilities

Funding and market liquidity are private liquidity puts.

Reserves (o/n)

T-Bills (o/n)

…

T-Repos (o/n)

T-Notes

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (retail)

<

T-CNAVs (o/n)


…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <


…

Private Assets

<




T-Repos (o/n) …



Assets

They both depend on private market participants (banks and dealers) for execution.

T-Notes


…

Public Assets

Borrowing against assets and selling assets is access to funding and market liquidity.


…


P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

Private Liquidity Puts Liabilities

32

T-Bills (o/n)

…

T-Repos (o/n)

T-Notes

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (funding/LoLR)

<

T-CNAVs (o/n)


…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)


P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <


…

Private Assets

<




T-Repos (o/n) …



Assets

This is access to funding as well as lender of last resort (LoLR) liquidity.

T-Notes


…

Retail and wholesale banks hardly ever have to sell.

Public Assets

Retail and wholesale banks can borrow against assets or put them to the central bank.


…


P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)


33

Sovereign (monetary backtop) Reserves (o/n)

Assets

T-Bills (o/n)

T-Repos (o/n)

T-Notes

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)


<

T-CNAVs (o/n)


…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)


P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <


…

Private Assets

<




T-Repos (o/n)

…


…

T-Notes


…

Public Assets

The sovereign has a monetary backstop (usually a taboo; often used during WWI & II and recently the OMT, see McCulley and Pozsar, 2012).


…


P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)


34


Assets

T-Bills (o/n)

Money Funds (funding/market) T-Repos (o/n)

<

T-CNAVs (o/n)


…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)


P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <


…

Private Assets

T-Repos (o/n) T-Repos (term)

T-Bills (term)


<

T-Notes

T-Bills (term)



T-Repos (o/n)

…


…

T-Notes


…

Public Assets

LoLR and monetary backstops are public liquidity puts.


…


P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

Public Liquidity Puts Private Liquidity Puts Liabilities

35



T-Bills (o/n)

T-Repos (o/n)

T-Notes

T-Repos (term)

Money Funds (funding/market) T-Repos (o/n)

T-Bills (term)

T-Bills (term)

<

T-CNAVs (o/n)


…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…


<

…

T-Repos (o/n) …



P-Loans

Deposits (term)

P-Notes

P-Repos (term)


P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <


…

Private Assets

If capital is short the hierarchy of credit puts overrides the hierarchy of liquidity puts.

Assets

But official liquidity puts are of value only if one has the capital to put up the haircut at the central bank to borrow the needed funds.

T-Notes


…

Public Assets

LoLR and monetary backstops are public liquidity puts.


…


P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

Public Liquidity Puts Private Liquidity Puts Liabilities

36


Sovereign (guaranteed)

Assets

Reserves (o/n)

T-Bills (o/n)

T-Repos (o/n)

T-Notes

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

<

T-CNAVs (o/n)

Dealer Banks

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…


Deposits (term)

P-Notes

P-Repos (term)

Banks

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds

…

Private Assets

<

Money Funds

Banks


T-Repos (o/n)

…


…

Public Assets

T-Notes

…

T-Bills are guaranteed.

Dealer Banks

…

Hierarchy of credit puts:

P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

37 Liabilities



Assets

Reserves (o/n)

T-Bills (o/n)

T-Repos (o/n)

T-Notes

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (insured)

<

T-CNAVs (o/n)

Dealer Banks

…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds

…

Private Assets

<

Money Funds



T-Repos (o/n)

…


…

Public Assets

T-Notes

…

Deposits are government insured up to $250,000.

Dealer Banks

…


P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

38 Liabilities



Assets

Reserves (o/n)

T-Bills (o/n)

T-Repos (o/n)

T-Notes

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (insured)

<

T-CNAVs (o/n)

Dealer Banks

…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds

…

Private Assets

<

Money Funds



T-Repos (o/n)

…


…

Public Assets

T-Notes

…

Guarantees and insurance are public credit puts.

Dealer Banks

…


P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

39

Public Credit Puts Liabilities



Assets

Reserves (o/n)

T-Bills (o/n)

T-Repos (o/n)

T-Notes

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (insured)

<

T-CNAVs (o/n)

Dealer Banks (secured)

…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds

…

Private Assets

<

Money Funds



T-Repos (o/n)

…

Public Assets

T-Notes

…

Repos are secured claims.


…


…


P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

40


Central Bank (Federal Reserve) Currency Reserves (o/n)

Sovereign (guaranteed) T-Bills (o/n)

T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (insured)

<

T-CNAVs (o/n)


…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Money Funds (secured/diversified)

Banks

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) < …

Private Assets

T-Repos (o/n)

Money Funds (secured/guaranteed)



<

T-Notes

…

Assets

Reserves (o/n)

T-Repos (o/n)

…

T-Notes

…

Public Assets

Money fund shares are backed either by secured and guaranteed assets, or secured and diversified assets. They may also have reputational puts to their sponsor (weak puts).


…


P-Loans

Deposits (term)

P-Bills (term)

<

P-CNAVs (o/n)

41


T-Notes



T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (insured)

<

T-CNAVs (o/n)


…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)


Banks

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) < …

Private Assets

T-Repos (o/n)




<

T-Notes

…

Assets

Reserves (o/n)

T-Repos (o/n)

…

Public Assets

Collateral, diversification and reputational puts are all private credit puts.


…


…


P-Loans

Deposits (term)

P-Bills (term)

Public Credit Puts

<

P-CNAVs (o/n)

Private Credit Puts Liabilities

42

T-Notes



T-Repos (term)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (insured)

<

T-CNAVs (o/n)


…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks (un-insured)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <


…

Private Assets

T-Repos (o/n)




<

T-Notes

…

Assets

Reserves (o/n)

T-Repos (o/n)

…

Public Assets

Un-insured deposits are unsecured and un-diversified.


…


…


P-Loans

Deposits (term)

P-Bills (term)

Public Credit Puts

<

P-CNAVs (o/n)

Private Credit Puts Liabilities

43

The hierarchy of money:

[1] Purely public money:

Currency Reserves


T-Repos (o/n)

<

T-Repos (o/n)

T-Notes

T-Repos (term)


T-Bills

T-Repos (o/n)

Purely public

T-Bills (term)

<

Ability to tax and money creation at will

[2] Private-public money:

Explicit liquidity puts from the Fed, and explicit credit puts from the sovereign (i.e. the FDIC) on all deposits < $250K.

T-CNAVs (o/n)



Banks (wholesale)

<

[3] Public-private money:

Implicit official liquidity and credit puts via Treasury collateral involved, but no direct puts on the liability side.

P-Repos (o/n)

P-Notes

P-Repos (term)

[4] Purely private money:

No official puts, not even implicitly via the collateral involved. Peripheral money

Money Funds (prime) P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

P-Repos (o/n)

…

…

Reserves Deposits (o/n) < Private P-Loans public

…

Private Assets

Banks (retail)

Public private

…

Assets

…

Purely public, hybrid and purely private money claims.

T-Notes

…

Public Assets

The types of assets and the types of backstops behind money claims yield four basic categories of money.


…


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<

P-CNAVs (o/n) Pur ely private

Private Backstops Liabilities

44


[1] Public money:

Currency Reserves


T-Repos (o/n)

<

T-Repos (o/n)

T-Notes

T-Repos (term)


T-Bills

T-Repos (o/n)

Public money

T-Bills (term)

<


[2] Insured money:


T-CNAVs (o/n)



Banks (wholesale)

<

[3] Public shadow money:


P-Repos (o/n)

P-Notes

P-Repos (term)

[4] Private shadow money:



T-Repos (o/n) …

Reserves (o/n) <

P-Repos (o/n)

…

…

Reserves Deposits (o/n) < Insured P-Loans money

…

Private Assets

Banks (retail)

Public shadow

…

Assets

…


T-Notes

…

Public Assets



…


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<

P-CNAVs (o/n) Private sha dow


45


[1] Public money (M0, or base money):

M0


T-Repos (o/n)

<

T-Repos (o/n)

T-Notes

T-Repos (term)


T-Bills

T-Repos (o/n)

Public money

T-Bills (term)

<

[2] Insured money (M1 and M2):


T-CNAVs (o/n)

Dealer Banks (credit desk) P-Repos (o/n) M1 M2

Banks (wholesale)

P-Notes

P-Repos (term)


[4] Private shadow money:



T-Repos (o/n) …

Reserves (o/n) <

<

[3] Public shadow money:

P-Repos (o/n) …

…


…

Private Assets

Banks (retail)

Public shadow

…

Assets

Traditional money supply…


Currency Reserves


…


T-Notes

…

Public Assets



…


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<



46



Reserves (o/n)

T-Repos (o/n)

<

T-Repos (o/n)

T-Notes

T-Repos (term)




T-Bills

T-Repos (o/n)

Public money

T-Bills (term)

Banks (retail)

<

T-CNAVs (o/n) M3

M1 M2

Banks (wholesale)

<

[3] Public shadow money (M3):


P-Repos (o/n) …

P-Repos (o/n) …

…


P-Notes

P-Repos (term)

[4] Private shadow money (M3):


Money Funds (prime)

T-Repos (o/n)

P-Repos (o/n) …

M3

…

Reserves (o/n) <

Public shadow


…

Private Assets


M0


Assets

Traditional money supply vs. shadow money supply.

Currency Reserves


…


T-Notes

…

Public Assets



…


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<



M3

47



Reserves (o/n)

T-Repos (o/n)

<

T-Repos (o/n)

T-Notes

T-Repos (term)




T-Bills

T-Repos (o/n)

Public money

T-Bills (term)

<

T-CNAVs (o/n)

P-Repos (o/n) M1 M2

Banks (wholesale)

<



P-Repos (o/n) …

…


P-Notes

P-Repos (term)



Money Funds (prime)

T-Repos (o/n)

P-Repos (o/n) …

M3

…

Reserves (o/n) <

M3


…

Private Assets

Banks (retail)

Public shadow

…

The shadow banking system…


M0


Assets


Currency Reserves


…


T-Notes

…

Public Assets



…


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<



M3

48



Reserves (o/n)

T-Repos (o/n)

<

T-Repos (o/n)

T-Notes

T-Repos (term)




T-Bills

T-Repos (o/n)

Public money

T-Bills (term)

<

T-CNAVs (o/n)

Banks (retail)

P-Repos (o/n) M1 M2

Banks (wholesale)

<



P-Repos (o/n) …

…


P-Notes

P-Repos (term)



Money Funds (prime)

T-Repos (o/n)

P-Repos (o/n) …

M3

…

Reserves (o/n) <

M3


…

Private Assets

[1] Public-private subsystem (public collateral, maturity and liquidity transformation see Carney and Panetta, 2011)

Public shadow

…



M0


Assets


Currency Reserves


…


T-Notes

…

Public Assets



…


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<



M3

49



Reserves (o/n)

T-Repos (o/n)

<

T-Repos (o/n)

T-Notes

T-Repos (term)




T-Bills

T-Repos (o/n)

Public money

T-Bills (term)

<

T-CNAVs (o/n)

Banks (retail)

P-Repos (o/n) M1 M2

Banks (wholesale)

P-Notes

P-Repos (term)




Money Funds (prime)

T-Repos (o/n)

M3

P-Repos (o/n) …

Reserves (o/n) <

<


P-Repos (o/n) …

…


…

[2] Purely private subsystem (private collateral, credit, maturity and liquidity trafo, see Pozsar et al, 2010)

M3


…

Private Assets

[1] Public-private subsystem (public collateral, maturity and liquidity transformation see Carney and Panetta, 2011)

Public shadow

…



M0


Assets


Currency Reserves


…


T-Notes

…

Public Assets



…


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<



M3

50

For dealers, money is o/n T-Repos with large banks.


Recall that only banks and the sovereign can have reserve accounts at the Fed.

T-Repos (o/n)

<

T-Repos (o/n)

T-Notes

T-Repos (term)

Money Funds (government-only) T-Repos (o/n)

Public money

T-Bills (term)

<

T-CNAVs (o/n)

…

T-Bills

Banks (retail)

P-Repos (o/n)

M3

M1 M2

Banks (wholesale)

<

P-Repos (o/n) …

…


P-Notes

P-Repos (term)

Money Funds (prime)

T-Repos (o/n)

P-Repos (o/n) …

M3

…

Reserves (o/n) <

Public shadow


…

Private Assets


M0

…

Assets

No longer…

Currency Reserves


For money funds, money is o/n T-Repos with dealers.


…


…

Enter the Fed’s RRPs:

P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<



M3

51



Currency Reserves

M0


T-Repos (o/n)

T-Notes

T-Repos (term)


T-Bills

RRPs (o/n)

Public money

T-Bills (term)

<

T-CNAVs (o/n)

…

Reserves (o/n)

<

…

RRPs (o/n)

Banks (retail)

RRPs (o/n)

M3

M1 M2

Banks (wholesale)

<

P-Repos (o/n) …

…


P-Notes

P-Repos (term)

Money Funds (prime)

T-Repos (o/n)

RRPs (o/n) …

M3

…

Reserves (o/n) <

Public shadow


…

Private Assets

RRPs are likely a station, not a destination (more on this shortly in Part II).

RRP (o/n)

…

T-Notes

Assets

Public Assets

RRPs effectively give money funds and dealers, the core entities of the shadow banking system, access to a reserve account at the Fed for the very first time in U.S. monetary history. Do appreciate the evolutionary significance of this step and look beyond the view that the only significance of RRPs is that they will help the Fed control short rates.


…

Enter the Fed’s RRPs:

P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<



M3

52

Overnight money claims by type: $ billions

3,500

3,000

2,500

2,000

1,500

1,000

500

0 Public Money

Insured Money

Private Shadow Money

Public Shadow Money

Q3-13

Reserves

Reverse Repos

T-Bills

Demand Deposits

Dealer Repos [o/n]

Securities Loaned

CNAVs

Source: Federal Reserve Z.1 and H.8, New York Fed (FR 2004), FDIC, U.S. Treasury

53

Term money claims by type: $ billions

6,000

5,000

4,000

3,000

2,000

1,000

0 Insured Money

Public Money


Public Shadow Money

Q3-13

T-Bills

T-Notes w/ RM < 1 yr.

Small TDs and savings deposits

Large TDs

Dealer Repos [term]

Securities Loaned

54

Source: Federal Reserve Z.1 and H.8, New York Fed (FR 2004) and author’s calculations



Retail cash investors:


Assets

…

T-Repos (o/n) T-Repos (term)


T-Bills (o/n)

T-Repos (o/n)

T-Bills (term)

T-Bills (term)

Banks (insured)

<

T-CNAVs (o/n)


…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…


Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds (prime)

…

Private Assets

<

T-Notes



T-Repos (o/n)

…

Public Assets

Holdings of cash and insured bank deposits.


…

T-Notes

…

Mom and pop depositors.


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<

P-CNAVs (o/n)


56

Institutional cash pools:

Central Bank (Federal Reserve) Currency Reserves (o/n)

T-Repos (o/n)

<

T-Notes

T-Repos (term)

Cash portfolio managers (PM).


T-Bills (o/n)

T-Repos (o/n) …

Reserves (o/n)

Assets

Restricted to invest mostly in money market instruments.


…

Mandate: “Do not lose”.

T-Bills (term)

T-Bills (term)

Banks (retail)

T-CNAVs (o/n)

…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)

P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds (prime)

…

Private Assets

<




T-Repos (o/n) …

T-Notes

…

Public Assets

At least $10bn in cash AuM (see Pozsar, 2011 and 2012).


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<

P-CNAVs (o/n)


57


T-Repos (o/n)

<

T-Repos (term)

"Cash" (term)

[1] FX reserve managers’ liquidity tranches.

T-Repos (o/n) …

T-Bills (o/n) T-Bills (term)

T-Bills (term)

Banks (retail)

T-CNAVs (o/n)

…

…

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans

Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)

Money Funds (prime)

…

P-Repos (o/n)

…

T-Repos (o/n)

…

Private Assets


<



Reserves (o/n) <

Equity (permanent)


…

Assets



"Cash" (o/n)

T-Notes

Cash portfolio managers (PM). Mandate: “Do not lose”.

T-Repos (o/n)

…


…

T-Notes

Cash PM (reserve managers)

…

Public Assets



…


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<

P-CNAVs (o/n)


58

T-Repos (o/n)

<

T-Repos (term)

"Cash" (term)

T-Bills (term)

T-Bills (term)

"Cash" (term)

Equity (permanent)


…

<

P-Repos (o/n)

…

P-Repos (o/n)

…


Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)


T-Repos (o/n) …

Reserves (o/n) <

"Cash" (o/n) …

T-CNAVs (o/n)

…

Private Assets

<

…

T-Repos (o/n)

Equity (permanent)

Cash PM (corporations)

…

T-Bills (o/n)

Banks (retail)

[2] Global corporate cash balances (on and offshore).



…


Assets



"Cash" (o/n)

T-Notes


T-Repos (o/n)

…


…

T-Notes


…

Public Assets



…


…


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<

P-CNAVs (o/n)


59

<

T-Repos (term)

"Cash" (term)

"Cash" (o/n) …

T-CNAVs (o/n)

T-Bills (term)

T-Bills (term)

"Cash" (term)


…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…


Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

Equity (temporary)


T-Repos (o/n) …

Reserves (o/n) <

Equity (permanent)

Cash PM (asset managers)

…

Private Assets

[3] Institutional investors’ pooled cash balances.

<

…

T-Repos (o/n)

Equity (permanent)


…

T-Bills (o/n)

Banks (retail)




…


Assets



"Cash" (o/n)

T-Notes


T-Repos (o/n)

…

T-Repos (o/n)

…


…

T-Notes


…

Public Assets



…


…


P-Loans

Deposits (term)

P-Bills (term)

Public Backstops

<

P-CNAVs (o/n)


60

<

T-Repos (term)

"Cash" (term)

…

"Cash" (o/n)

T-Bills (term)

T-Bills (term)

"Cash" (term)


…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…


Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

P-Repos (o/n)

<

P-CNAVs (o/n)

"Cash" (o/n) …

T-Repos (o/n)

P-Loans

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


Equity (temporary)

Cash PM (seclenders)

…

Reserves (o/n) <

Money Funds (prime)

Equity (permanent)


…

[4] Seclenders’ cash collateral reinvestment accounts.

T-CNAVs (o/n)

…

Private Assets

[3] Institutional investors’ pooled cash balances.

<

…

T-Repos (o/n)

Equity (permanent)


…

T-Bills (o/n)

Banks (retail)




…


Assets



"Cash" (o/n)

T-Notes


T-Repos (o/n)

…

T-Repos (o/n)

…


…

T-Notes


…

Public Assets



…


…


Cash (collateral)

61

Institutional cash pools: $ billions

6,000

5,000

4,000

3,000

2,000

1,000

0 1997 Reserve managers

2000 Corporations

07Q2 Institutional Investors

13Q3 Securities lenders

Source: Federal Reserve Z.1, BIS, ICI and author’s calculations

62

Tough to be safe on scale:

[1]

"Cash" (o/n)

T-Notes

T-Repos (term)

"Cash" (term)

T-Repos (o/n) …

…

T-CNAVs (o/n)

Equity (permanent)


T-Bills

Public money

T-Bills (term)

"Cash" (term)

<

…

T-Repos (o/n)

…

<


"Cash" (o/n)

Equity (permanent)

[1] Banks (retail)


… …

…

…

Insured money

P-Repos (term)

"Cash" (term)

Equity

Banks (wholesale)

Money Funds (prime) <

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

T-Repos (o/n)

P-Loans

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


(temporary)


…

Reserves (o/n) <

"Cash" (o/n)

P-Notes

…

P-Loans

<

P-Repos (o/n)

…

P-Repos (o/n)


…

Private Assets

Reserves Deposits (o/n) < (insured)


T-Repos (o/n)


Assets

Currency Reserves

…

Public Assets

T-Notes


…

[1] Cash pools do not have access to M0, M1 or M2.


…


Cash (collateral)

63


[1]

T-Repos (term)

"Cash" (term)

T-Bills

T-Repos (o/n)

Public money

T-Bills (term)

"Cash" (term)

<

T-CNAVs (o/n)

Equity (permanent)


…


…

"Cash" (o/n) …

T-Repos (o/n)

… Assets

<

T-Notes


"Cash" (o/n)

Equity (permanent)

[1] Banks (retail)


… …

…

Insured money

P-Repos (term)

"Cash" (term)

Equity

Banks (wholesale)


P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

T-Repos (o/n)

P-Loans

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


(temporary)


…

Reserves (o/n) <

"Cash" (o/n)

P-Notes

…

P-Loans

<

P-Repos (o/n) …

P-Repos (o/n)


…

Private Assets



T-Repos (o/n)

…

 …for cash pools, money begins where M2 ends.

Currency Reserves

…

Public Assets

T-Notes


…

[1] Cash pools do not have access to M0, M1 or M2…


…


Cash (collateral)

64


[1]

…

"Cash" (o/n)

…

T-Repos (o/n)

T-Notes

T-Repos (term)

"Cash" (term)

Equity (permanent)

Reserves (o/n)


(no t eno ugh )

T-Repos (o/n)

Public money

T-Bills (term)

"Cash" (term)

T-Bills

<

T-CNAVs (o/n)

Cash PM (corporations) "Cash" (o/n)

…


…

Assets

<

[2]

[2] Cash pools cannot get enough U.S. Treasury bills…

Equity (permanent)

[1] Banks (retail)


… …

…

Insured money

P-Repos (term)

"Cash" (term)

Equity

Banks (wholesale)


P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

T-Repos (o/n)

P-Loans

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


(temporary)


…

Reserves (o/n) <

"Cash" (o/n)

P-Notes

…

P-Loans

<

P-Repos (o/n) …

P-Repos (o/n)


…

Private Assets



T-Repos (o/n)

…

 For cash pools, money begins where M2 ends.

Currency Reserves

…

Public Assets

T-Notes


…



…


Cash (collateral)

65


[1]

…

…

"Cash" (o/n)

T-Repos (term)

"Cash" (term)

Equity (permanent)

(no t eno ugh )

T-Repos (o/n)

Public money

T-Bills (term)

"Cash" (term)

T-Bills

<

T-CNAVs (o/n)


…

Reserves (o/n)


…

Assets

T-Repos (o/n)

T-Notes


Equity (permanent)

[1] Banks (retail)


… …

…

Insured money

P-Repos (term)

"Cash" (term)

Equity

Banks (wholesale)


P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

T-Repos (o/n)

P-Loans

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


(temporary)


…

Reserves (o/n) <

"Cash" (o/n)

P-Notes

…

P-Loans

<

P-Repos (o/n) …

P-Repos (o/n)


…

Private Assets



<

[2]

[2] Cash pools cannot get enough U.S. Treasury bills…  …inelastic supply of public money claims.

T-Repos (o/n)

…


Currency Reserves

…

Public Assets

T-Notes


…



…


Cash (collateral)

66


[1]

…

…

"Cash" (o/n)

T-Repos (term)

"Cash" (term)

Equity (permanent)

(no t eno ugh )

T-Repos (o/n)

Public money

T-Bills (term)

"Cash" (term)

T-Bills

<

T-CNAVs (o/n)


…

Reserves (o/n)


…

Assets

T-Repos (o/n)

T-Notes


Equity (permanent)

[1] Banks (retail)


…

Insured money

"Cash" (o/n) … …

P-Loans

<

P-Repos (o/n) …

P-Repos (o/n) P-Notes

P-Repos (term)

"Cash" (term)

Equity

…

(temporary)

[3] Banks (wholesale)

P-Repos (o/n)

<

P-CNAVs (o/n)

"Cash" (o/n) …

T-Repos (o/n)


…

Reserves (o/n) <

Money Funds (prime)

…

Private Assets



…

[3] Cash pools have limits on un-secured credit risk…

P-Loans

Deposits

P-Bills (term)

"Cash" (term)

(uninsured )


<

[2]


T-Repos (o/n)

…


Currency Reserves

…

Public Assets

T-Notes


…



…


Public Backstops


Cash (collateral)

67


[1]

…

…

"Cash" (o/n)

T-Repos (term)

"Cash" (term)

Equity (permanent)

(no t eno ugh )

T-Repos (o/n)

Public money

T-Bills (term)

"Cash" (term)

T-Bills

<

T-CNAVs (o/n)


…

Reserves (o/n)


…

Assets

T-Repos (o/n)

T-Notes


Equity (permanent)

[1] Banks (retail)


… …

…

Insured money

"Cash" (o/n)

…

P-Loans

<

P-Repos (o/n)

P-Notes

P-Repos (term)

"Cash" (term)

Equity (temporary)


P-Repos (o/n)

<

P-CNAVs (o/n)

"Cash" (o/n) …

T-Repos (o/n)


…

Reserves (o/n) <

Money Funds (prime)

…

 …inelastic demand for un-insured bank deposits.

P-Repos (o/n)

…

Private Assets



…


P-Loans

Deposits

P-Bills (term)

"Cash" (term)

(uninsured )


<

[2]


T-Repos (o/n)

…


Currency Reserves

…

Public Assets

T-Notes


…



…


Public Backstops


Cash (collateral)

68


Assets

…

"Cash" (term)

Equity (permanent)

Public money

T-Bills (term)

<

T-CNAVs (o/n)

"Cash" (o/n)

Public shadow

"Cash" (term)

…

T-Repos (o/n)

T-Bills


…

(no t eno ugh )

Equity (permanent)

[4] Banks (retail)


… …

…

Insured money

"Cash" (o/n)

…

P-Loans

<

P-Repos (o/n)


…


P-Repos (term)

"Cash" (term)

Equity

…


(temporary)


P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds (prime)

…

Private Assets

"Cash" (o/n)

T-Repos (term)

…

Reserves (o/n)

P-Loans

Deposits

P-Bills (term)

(uninsured )


T-Repos (o/n)


[1]


<

T-Notes



[4] Cash pools opt for second best alternatives…

T-Repos (o/n)

[2]


Currency Reserves


…

Public Assets

T-Notes


…



[4]

…

[1]

Public Backstops

<

P-CNAVs (o/n)

"Cash" (o/n)

Private sha dow

"Cash" (term)


Cash PM (seclenders) Cash (collateral)

…


69


Assets

…

"Cash" (term)

Equity (permanent)

Public money

T-Bills (term)

<

T-CNAVs (o/n)

"Cash" (o/n)

Public shadow

"Cash" (term)

…

T-Repos (o/n)

T-Bills


…

(no t eno ugh )

…

Reserves (o/n)

Equity (permanent)

[4] Banks (retail)


… …

…

Insured money

"Cash" (o/n)

…

P-Loans

<

P-Repos (o/n)


…


P-Repos (term)

"Cash" (term)

Equity

…


(temporary)

[3] Banks (wholesale) T-Repos (o/n)

P-Repos (o/n) …

Reserves (o/n) <

Money Funds (prime)

…

Private Assets

"Cash" (o/n)

T-Repos (term)

…

 …the elastic middle of shadow money claims. Source: Pozsar (2014)

T-Repos (o/n)


[1]


<

T-Notes



[4] Cash pools opt for second best alternatives…

T-Repos (o/n)

[2]


Currency Reserves


…

Public Assets

T-Notes


…



[4]

…

[1]

P-Loans

Deposits

P-Bills (term)

(uninsured )

Public Backstops

<

P-CNAVs (o/n)

"Cash" (o/n)

Private sha dow

"Cash" (term)



…


70

[4] Central Bank (Federal Reserve)

T-Repos (o/n)

<

T-Repos (o/n)

T-Notes

T-Repos (term)

"Cash" (term)


(no t eno ugh )

T-Repos (o/n)

Public money

T-Bills (term)

<

T-CNAVs (o/n)

"Cash" (o/n)

Public shadow

"Cash" (term)

[1]

[4] Banks (retail)


… …

…

Insured money

"Cash" (o/n)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

…

P-Loans

<

P-Repos (o/n) …

P-Repos (o/n)


…


(temporary)


P-Repos (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds (prime)

…

Private Assets

Equity (permanent)

P-Loans

Deposits

P-Bills (term)

(uninsured )

Public Backstops

<

P-CNAVs (o/n)

"Cash" (o/n)

Private sha dow

"Cash" (term)



…

Assets

…

T-Bills

Cash PM (corporations) …


Onshore:

[6] CP Source: Pozsar (2014)

Equity (permanent)

[2]

Reserves (o/n)

[5] CD

"Cash" (o/n) …

Currency Reserves

…

Public Assets

T-Notes


…

Search for yield begins where the matrix ends…


…

[1]

…

Search for safety vs. yield:

71

[4] Central Bank (Federal Reserve)

T-Repos (o/n)

<

T-Repos (o/n)

T-Notes

T-Repos (term)

"Cash" (term)


(no t eno ugh )

T-Repos (o/n)

Public money

T-Bills (term)

T-Bills

<

[1]

T-CNAVs (o/n)

"Cash" (o/n)

Public shadow

"Cash" (term)


… …

…

"Cash" (o/n)

…

Insured money

<

P-Repos (o/n)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

…

P-Loans

(temporary)

[3]

…

P-Repos (o/n)

…

T-Repos (o/n)

…

Reserves (o/n) <

Money Funds (prime)

P-Loans

Deposits

P-Bills (term)

Public Backstops

<

P-CNAVs (o/n)

"Cash" (o/n)

Private sha dow

"Cash" (term)



…

Banks (wholesale)

(uninsured )

[6] CP [8] ECP Source: Pozsar (2014)

P-Repos (o/n)


…

Reserves Deposits (o/n) < (insured) Private Assets

[7] ECD

Equity (permanent)

[4] Banks (retail)

Offshore:

Cash PM (corporations) …


… Assets

[5] CD

Equity (permanent)

[2]

Reserves (o/n)

Onshore:

"Cash" (o/n) …

Currency Reserves

…

Public Assets

T-Notes


…

Search for yield begins where the matrix ends…


…

[1]

…

Search for safety vs. yield:

72

RRPs (o/n)

RRPs (o/n)

"Cash" (o/n) …

Currency Reserves

T-Notes

T-Repos (term)

"Cash" (term)

Equity (permanent)

(no t eno ugh )

RRPs (o/n)

Public money

T-Bills (term)

T-Bills

<

[1]


T-CNAVs (o/n)

"Cash" (o/n)

Public shadow

"Cash" (term)

…

Reserves (o/n)


…


Equity (permanent)

[4] Banks (retail)


… …

…

Insured money

"Cash" (o/n)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

…

P-Loans

<

P-Repos (o/n) …

RRPs (o/n)


…


(temporary)


RRPs (o/n) …

T-Repos (o/n) …

Reserves (o/n) <

Money Funds (prime)

…

Private Assets

T-Repos (o/n)

[2]

P-Loans

Deposits

P-Bills (term)

(uninsured )


<

…


…

Public Assets

Assets

That is, corporations and asset managers are still constrained to holding mostly shadow money claims.

T-Notes


…


Unlike individuals, banks and now shadow banks, cash pools still do not have a direct access to the Fed’s liabilities (the ultimate form of money, and the safest of safe assets around).

But the quality of shadow money claims is now much better because they are now backed (at least in part) by something better (RRPs) than ever before.

[4]

…

[1]

Public Backstops

<

P-CNAVs (o/n)

"Cash" (o/n)

Private sha dow

"Cash" (term)



…

RRPs and cash pools:

73

T-Notes

T-Repos (term)

"Cash" (term)

T-Repos (o/n)

Equity (permanent)

[2]

RRPs (o/n)

Public money

T-Bills (term)

T-Bills

<

[1]


T-CNAVs (o/n)

"Cash" (o/n)

Public shadow

"Cash" (term)

…

(no t eno ugh )

…

Reserves (o/n)


…


Equity (permanent)

[4] Banks (retail)


…

Insured money

"Cash" (o/n) … …

P-Loans

<

P-Repos (o/n) …

RRPs (o/n)


…


P-Notes

P-Repos (term)

"Cash" (term)

Equity (temporary)

[3] Banks (wholesale) Reserves (o/n) <

Money Funds (prime)

T-Repos (o/n)

RRPs (o/n)

P-Loans

Deposits

P-Bills (term)

(uninsured )


<

…

Currency Reserves

…

Private Assets

This could be an evolutionary step toward Mehrling’s “dealer of last resort” in Bagehot 21st century sense.

"Cash" (o/n)

…

Assets

The implementation of minimum RRP balances would increase the safety of shadow money claims further still.

RRPs (o/n)

…

Required minimum RRP balances for shadow banks could become equivalent to what minimum reserve requirements are for traditional banks.

RRPs (o/n)

…

Public Assets

T-Notes


…


Consider RRPs potential as a macro-prudential tool.


…

[4]

…

[1]

Public Backstops

<

P-CNAVs (o/n)

"Cash" (o/n)

Private sha dow

"Cash" (term)



…

RRPs and cash pools:

74

Cash pools’ access to overnight money: $ billions

2,500

2,000

1,500

1,000

500

0 Private Shadow Money

Public Shadow Money

Insured Money

Public Money

Q3-13 Demand Deposits

Dealer Repos [o/n]

Securities Loaned

CNAVs [Institutional Class]

T-Bills

Source: Haver, Federal Reserve Board, Federal Reserve Bank of New York, FDIC

75

Not all un-insured demand deposits belong to cash pools: $ billions

2,500

Banks with $50 < assets < $100 billion: 4,200 accts., each $2.2 million on avg. 2,000

Banks with assets of over $100 billion: 24,800 accts, each $2.9 million on avg. 1,500

1,000

500

0 Private Shadow Money

Public Shadow Money

Insured Money

Public Money

Q3-13 Demand Deposits

Dealer Repos [o/n]

Securities Loaned

CNAVs [Institutional Class]

T-Bills

Source: Haver, Federal Reserve Board, Federal Reserve Bank of New York, FDIC

76

Cash pools’ access to term money: $ billions

2,500

2,000

1,500

1,000

500

0 Public Money


Public Shadow Money

Insured Money

Q3-13 T-Bills


Savings and Small TDs

Large TDs

Dealer Repos [term]

Secs. Loaned

Source: Haver, Federal Reserve Board, Federal Reserve Bank of New York

77

Not all large time deposits belong to cash pools: $ billions

2,500

We do not know what share of large time deposits belong to cash pools vs. SMEs and the wealthy. 2,000

1,500

1,000

500

0 Public Money


Public Shadow Money

Insured Money

Q3-13 T-Bills


Savings and Small TDs

Large TDs

Dealer Repos [term]

Secs. Loaned

Source: Haver, Federal Reserve Board, Federal Reserve Bank of New York

78



…

…

"Cash" (term)


<

T-CNAVs (o/n)

"Cash" (o/n)

T-Bills (term)

T-Bills (term)

"Cash" (term)


… …

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)


…

P-Repos (o/n)

Equity (permanent)

…


Equity (permanent)


…

T-Bills (o/n)

"Cash" (o/n)

T-Repos (term)

Banks (retail)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

Banks (wholesale)

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

Deposit (o/n)

P-Loans (local)

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


(temporary)


…

Reserves (o/n) <

Money Funds (prime)

…

Private Assets

T-Repos (o/n)

…

Assets

<

T-Notes



T-Repos (o/n) …



…

Clear links to the real economy through loans.


Retail banks create money and credit ex nihilo (see for example Turner, 2013).


…


…

Money creation:

Cash (collateral)

80

…

…

"Cash" (term)


T-Bills (o/n)

"Cash" (o/n)

T-Repos (term)

T-Repos (o/n)

<

T-CNAVs (o/n)

"Cash" (o/n)

T-Bills (term)

"Cash" (term)



…

… …

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

Equity (permanent)

…

P-Repos (o/n)

Equity (permanent)


T-Bills (term)

Banks (retail)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

Banks (wholesale)

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

Deposit (o/n)

P-Loans (local)

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


(temporary)


…

Reserves (o/n) <

Money Funds (prime)

…

Private Assets

T-Repos (o/n)

…

Assets

Reserves (o/n)

<

T-Notes




T-Repos (o/n) …


…

There are at least six forms of money dealing…

T-Notes


…

Public Assets

Money dealing is borrowing and lending of short-term money in the unsecured and secured and local and global (Eurodollar) money markets.


…


…

Money dealing:

Cash (collateral)

81

"Cash" (term)

"Cash" (o/n) …

T-CNAVs (o/n)

T-Bills (term)

T-Bills (term)

"Cash" (term)


… …

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…

FF (o/n)

Equity (permanent)


P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

Banks (wholesale)

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

<

FF (o/n)

P-Loans (local)

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


(temporary)


…

FF (o/n)

Money Funds (prime)

…

Private Assets

<

…

T-Repos (o/n)

Equity (permanent)


… Assets

"Cash" (o/n)

T-Repos (term)

Banks (retail)

[1]

T-Repos (o/n)


T-Bills (o/n)

Reserves (o/n) <

<

T-Notes



T-Repos (o/n)

…


…

Public Assets

T-Notes


…

[1] Interbank money dealing in the federal funds market.


…


…

Money dealing:

Cash (collateral)

82

T-Repos (o/n)

"Cash" (term)

"Cash" (o/n) …

T-CNAVs (o/n)

T-Bills (term)

T-Bills (term)

"Cash" (term)


… …

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…

FF (o/n)

Equity (permanent)


P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

Banks (wholesale)

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

<

FF (o/n)

P-Loans (local)

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


(temporary)


…

FF (o/n)

Money Funds (prime)

…

Private Assets

<

…

T-Repos (o/n)

Equity (permanent)


… Assets

"Cash" (o/n)

T-Repos (term)

Banks (retail)

[1]

T-Repos (o/n)


T-Bills (o/n)

Reserves (o/n) <

<

T-Notes



[2]

…

[2] Interdealer money dealing in the GCF repo market.


…

Public Assets

T-Notes


…



…


…

Money dealing:

Cash (collateral)

83

T-Repos (o/n)

"Cash" (term)

"Cash" (o/n)

T-Bills (term)

"Cash" (term)


… …

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…

FF (o/n)

Equity (permanent)


P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

Banks (wholesale)

P-Repos (o/n)

<

P-CNAVs (o/n)

"Cash" (o/n) …

[3]

…

<

FF (o/n)

P-Loans (local)

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


(temporary)


…

FF (o/n)

Money Funds (prime)

…

Private Assets

T-CNAVs (o/n)

T-Bills (term)

Banks (retail)

[1]

<

…

T-Repos (o/n)

Equity (permanent)


…

[3]

"Cash" (o/n)

T-Repos (term)


T-Bills (o/n)

Reserves (o/n) <

T-Repos (o/n)

…

Assets

Reserves (o/n)

<

T-Notes


[3] Interlinked money dealing in the TRP repo market (cash PM -> MMF -> dealer).


[2]

…



…

Public Assets

T-Notes


…



…


…

Money dealing:

Cash (collateral)

84

T-Repos (term)

"Cash" (term)

T-CNAVs (o/n)

"Cash" (o/n)

T-Bills (term)

T-Bills (term)

"Cash" (term)


… …

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…

FF (o/n)

Equity (permanent)


P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

Banks (wholesale)

P-Repos (o/n)

<

P-CNAVs (o/n)

"Cash" (o/n) …

[3]

…

<

FF (o/n)

P-Loans (global)

Deposits (term)

P-Bills (term)

"Cash" (term)

Public Backstops


(temporary)


…

FF (o/n)

Money Funds (prime)

…

Private Assets

<

…

T-Repos (o/n)

Equity (permanent)


…

[3]

"Cash" (o/n)

T-Notes

Banks (retail)

[1]

T-Repos (o/n)


T-Bills (o/n)

Reserves (o/n) <

<

…

Assets

Reserves (o/n)

[4]


T-Repos (o/n)


[3] Interlinked money dealing in the TRP repo market (cash PM -> MMF -> dealer). [4] Interoffice money dealing via the NY branches of foreign banks, funded by selling Yankee CD and CP to prime money funds (see Shin, 2011 and 2013).

[2]

…



…

Public Assets

T-Notes


…



…


…

Money dealing:

Cash (collateral)

85


T-Repos (term)

"Cash" (term)

"Cash" (o/n)

T-Bills (term)

"Cash" (term)


… …

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)


…

P-Repos (o/n)

Equity (permanent)

…

FF (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

Deposits (term)

[5]

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Loans (global)

P-Repos (o/n)

…

[3]

P-Bills (global)

P-CNAVs (o/n)

"Cash" (term)

Public Backstops


(temporary)


…

<

FF (o/n) …

FF (o/n)

Money Funds (prime)

…

Private Assets

T-CNAVs (o/n)

T-Bills (term)

Banks (wholesale)

[4]

<

…

T-Repos (o/n)

Equity (permanent)


…

[3]

"Cash" (o/n)

T-Notes

Banks (retail)

[1]

T-Repos (o/n)


T-Bills (o/n)

Reserves (o/n) <

<

…

Reserves (o/n)

Assets

[5] Crossborder money dealing via the headquarters of foreign banks selling Eurodollar CD and CP to prime money market funds.

T-Repos (o/n)


[3] Interlinked money dealing in the TRP repo market (cash PM -> MMF -> dealer). [4] Interoffice money dealing via the NY branches of foreign banks, funded by selling Yankee CD and CP to prime money funds (see Shin, 2011 and 2013).

[2]

…



…

Public Assets

T-Notes


…



…


…

Money dealing:

Cash (collateral)

86

T-Repos (o/n)

"Cash" (term)

…

"Cash" (o/n)

T-Bills (term)

"Cash" (term)


… …

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)


…

[6]

Equity (permanent)

…

FF (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Equity

P-Loans (global)

Deposits (term)

[5]

P-Repos (o/n)

<

P-CNAVs (o/n)

"Cash" (o/n) …

[3]

P-Bills (global)

"Cash" (term)

Public Backstops


(temporary)


…

<

FF (o/n) …

FF (o/n)

Money Funds (prime)

…

Private Assets

T-CNAVs (o/n)

T-Bills (term)

Banks (wholesale)

[4]

<

…

T-Repos (o/n)

Equity (permanent)


… Assets

[3]

"Cash" (o/n)

T-Repos (term)

Banks (retail)

[1]

T-Repos (o/n)


T-Bills (o/n)

Reserves (o/n) <

<

T-Notes



[2] [6]

…


…

Public Assets

T-Notes


…

[6] Client-driven money dealing in the DvP repo market.


…


…

Money dealing:

Cash (collateral)

87

Assets

…


<

T-CNAVs (o/n)

"Cash" (o/n)

T-Bills (term)

T-Bills (term)

"Cash" (term)


…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

<

FF (o/n)

P-Loans (global)

Deposits (term)

P-Bills (global)

"Cash" (term)

Public Backstops


…

Equity (temporary)


…

FF (o/n)

Money Funds (prime)

Equity (permanent)


…

FF (o/n)

Equity (permanent)


…

Private Assets

Reserves (o/n) <


"Cash" (term)

Banks (retail)

Risk PM

Risk PM

T-Repos (term)

…

T-Bills (o/n)

"Cash" (o/n)

T-Notes


T-Repos (o/n)

…

Risk PM

<

…

Public Assets

Dealers’ buy-side clients: risk portfolio managers (PM).

T-Repos (o/n)

…



…

T-Notes


…



…

Money dealing:

Cash (collateral)

88


…

…

"Cash" (term)

T-Repos (o/n)

<

T-CNAVs (o/n)

"Cash" (o/n)

T-Bills (term)

"Cash" (term)

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

<

FF (o/n)

P-Loans (global)

Deposits (term)

P-Bills (global)

"Cash" (term)

Public Backstops


Equity (temporary)


…

FF (o/n)

Money Funds (prime)

Equity (permanent)


…

FF (o/n)

…


T-Bills (term)


Equity (permanent)

…


…

Private Assets

Reserves (o/n) <

"Cash" (o/n)

T-Repos (term)

Banks (retail)

Risk PM

T-Repos (o/n)

…

Assets

T-Bills (o/n)

<

T-Notes


Risk PM

T-Repos (o/n) …



…

Risk PM

T-Notes


…

Mandate: “Beat benchmark”. Three forms of leverage…

Public Assets



…

Money dealing:

Cash (collateral)

89


…

…

"Cash" (term)

T-Repos (o/n)

<

T-CNAVs (o/n)

"Cash" (o/n)

T-Bills (term)

"Cash" (term)

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

<

FF (o/n)

P-Loans (global)

Deposits (term)

P-Bills (global)

"Cash" (term)

Public Backstops


Equity (temporary)


…

FF (o/n)

Money Funds (prime)

Equity (permanent)


…

FF (o/n)

…


T-Bills (term)


Equity (permanent)

…


…

Private Assets

Reserves (o/n) <

"Cash" (o/n)

T-Repos (term)

Banks (retail)

Risk PM

T-Repos (o/n)

…

Assets

T-Bills (o/n)

<

T-Notes


Risk PM

T-Repos (o/n) …



…

Type 1:

Risk PM (cash for funding)

T-Notes


…


Public Assets



…

Money dealing:

Cash (collateral)

90


…

…

"Cash" (term)

T-Repos (o/n)

<

T-CNAVs (o/n)

"Cash" (o/n)

T-Bills (term)

"Cash" (term)

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

<

FF (o/n)

P-Loans (global)

Deposits (term)

P-Bills (global)

"Cash" (term)

Public Backstops


Equity (temporary)


…

FF (o/n)

Money Funds (prime)

Equity (permanent)


…

FF (o/n)

…


T-Bills (term)


Equity (permanent)

…


…

Private Assets

Risk PM

"Cash" (o/n)

T-Repos (term)

Banks (retail) Reserves (o/n) <

T-Repos (o/n)

…

Assets

Risk PM (cash for shorting)

T-Bills (o/n)

<

T-Notes


Type 2:

T-Repos (o/n) …



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collateral)

91


…

…

"Cash" (term)

T-Repos (o/n)

<

T-CNAVs (o/n)

"Cash" (o/n)

T-Bills (term)

"Cash" (term)

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

<

FF (o/n)

P-Loans (global)

Deposits (term)

P-Bills (global)

"Cash" (term)

Public Backstops


Equity (temporary)


…

FF (o/n)

Money Funds (prime)

Equity (permanent)


…

FF (o/n)

…


T-Bills (term)


Equity (permanent)

…


…

Risk PM (cash for margining)

Private Assets

Type 3:

"Cash" (o/n)

T-Repos (term)

Banks (retail) Reserves (o/n) <

T-Repos (o/n)

…

Assets


T-Bills (o/n)

<

T-Notes


Type 2:

T-Repos (o/n) …



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collateral)

92

…

T-Notes

T-Repos (term)

"Cash" (term)

T-CNAVs (o/n)

"Cash" (o/n)

T-Bills (term)

"Cash" (term)


Banks (retail)


…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

…

FF (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

<

P-CNAVs (o/n)

"Cash" (o/n) …

P-Repos (o/n) …

<

FF (o/n)

P-Loans (global)

Deposits (term)

P-Bills (global)

"Cash" (term)

Public Backstops


…

Equity (temporary)


…

FF (o/n)

Money Funds (prime)

Equity (permanent)


…

Private Assets



…

<


…

T-Repos (o/n)

Equity (permanent)

…


T-Bills (term)

Reserves (o/n) <

Type 3:

"Cash" (o/n)

…

T-Bills (o/n)

T-Repos (term)

Equity (temporary)

Type 2:

Reserves (o/n)

<

…

T-Repos (term)

T-Repos (term)


Assets

T-Notes (RMBS)



…

Type 1:

Risk PM (M-REIT)

T-Notes


…


Public Assets



…

Money dealing:

Cash (collateral)

93

…

T-Notes

T-Repos (term)

"Cash" (term)

"Cash" (o/n) "Cash" (term)

Banks (retail)


…

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale) <

FF (o/n)

P-Repos (o/n)

<

P-CNAVs (o/n)

"Cash" (o/n)

P-Loans (global)

Deposits (term)

P-Bills (global)

"Cash" (term)

Public Backstops


…

Equity (temporary)


…

FF (o/n)

Money Funds (prime)

…


P-Repos (o/n)

…

(temporary)

FF (o/n)

…

Reserves (o/n) <

Equity (permanent)

Cash PM (short seller)

…

Equity


…

T-CNAVs (o/n)

…

<


…

T-Repos (o/n)

Equity (permanent)

…


T-Bills (term)

Private Assets

Type 3:

"Cash" (o/n)

T-Bills (term)

Risk PM ("real money") T-Notes P-Notes

T-Bills (o/n)

T-Repos (term)

Equity (temporary)

Type 2:

Reserves (o/n)

<

…

T-Repos (term)

T-Repos (term)


Assets

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collateral)

94

…

"Cash" (term)

T-CNAVs (o/n)

"Cash" (o/n) …

<

"Cash" (term)


Assets

…

…

Shorts (P-Notes)

…

P-Repos (o/n)

…

<

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

(temporary)

Banks (wholesale) FF (o/n)

<

FF (o/n)

Money Funds (prime) P-Repos (o/n)

<

P-CNAVs (o/n)

"Cash" (o/n)

P-Loans (global)

Deposits (term)

P-Bills (global)

"Cash" (term)

Public Backstops


Equity


…


P-Repos (term)

…

Equity

FF (o/n) …

(temporary)

Reserves (o/n) <


…

T-Notes P-Notes

[A]


Equity (permanent)

…

…

P-Repos ( (term)

Banks (retail)

…


…

T-Repos (o/n)

Equity (permanent)

…


…

Type 3:

T-Repos (term)

T-Bills (term)

…

(collat.)

"Cash" (o/n)

T-Bills (term)

Risk PM (seclender) Cash

T-Bills (o/n)

T-Repos (term)

T-Notes


<

Equity (temporary)

Type 2:

T-Repos (term)

…

T-Repos (term)

Private Assets

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collateral)

95

…

T-CNAVs (o/n)

"Cash" (o/n) …

<

"Cash" (term)


Assets

…

Shorts (P-Notes)

…

P-Repos (o/n)

…

<

P-Repos (o/n)

…

P-Repos (term)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

(temporary)


<

FF (o/n)

Money Funds (prime) P-Repos (o/n)

<

P-CNAVs (o/n)

"Cash" (o/n)

P-Loans (global)

Deposits (term)

P-Bills (global)

"Cash" (term)

Public Backstops


Equity


…

[B]

FF (o/n)

…


Reserves (o/n) <


…

Equity (temporary)

[A]


Equity (permanent)

…

P-Repos ( (term)

Banks (retail)

…


…

T-Repos (o/n)

Equity (permanent)

…


…

Type 3:

"Cash" (term)

…

T-Notes P-Notes

T-Repos (term)

T-Bills (term)

…

(collat.)

"Cash" (o/n)

T-Bills (term)

Risk PM (seclender) Cash

T-Bills (o/n)

T-Repos (term)

T-Notes


<

Equity (temporary)

Type 2:

T-Repos (term)

…

T-Repos (term)

Private Assets

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collat.)

96

…

"Cash" (term)

T-CNAVs (o/n)

"Cash" (o/n) …

<


…

…

…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale) <

FF (o/n)

P-Repos (o/n)

<

P-CNAVs (o/n)

"Cash" (o/n)

P-Loans (global)

Deposits (term)

P-Bills (global)

"Cash" (term)

Public Backstops


CDS IRS FXS Equity (temporary)


…

FF (o/n)

Money Funds (prime)

…

Equity (temporary)

P-Repos (term)

…

Risk PM (tactical hedger)

FF (o/n)

Equity (permanent)

Cash PM ("overlay investor")

…

Equity

Private Assets

… (temporary)

Reserves (o/n) <


…


…

T-Repos (o/n)

Equity (permanent)

…


Banks (retail)

P-Repos ( (term)

T-Notes P-Notes

CDS IRS FXS T-Notes P-Notes

T-Repos (term)

"Cash" (term)

…

Type 3:

T-Notes

T-Bills (term)

…

(collat.)

"Cash" (o/n)

T-Bills (term)

Risk PM (cash for shorting) Cash

T-Bills (o/n)

T-Repos (term)

Equity (temporary)

Type 2:

Reserves (o/n)

<

…

T-Repos (term)

T-Repos (term)


Assets

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collat.)

97

…

"Cash" (term)

…


…

…

…

…

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)


<

…



FF (o/n)

"Cash" (o/n) …

Equity (temporary)

P-Loans (local)

…


"Cash" (o/n)

…

Equity

<

P-Repos (o/n)

Equity (permanent)


…

(temporary)

P-Repos (term)

…

"Cash" (o/n)


FF (o/n)

Equity (permanent)


T-Bills (o/n)

Reserves (o/n) < Private Assets

…

T-Notes P-Notes


T-Repos (term)

Banks (retail)

P-Repos ( (term)

…

Type 3:

T-Notes

"Cash" (term)

…

(collat.)

Reserves (o/n)

"Cash" (o/n)

T-Bills (term)


T-Repos (term)

Equity (temporary)

Type 2:

<

…

T-Repos (term)

T-Repos (term)


Assets

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

P-Loans (global)

Deposits (term)

"Cash" (term)

Public Backstops


Cash (collat.)

98

…

"Cash" (term)

Swaps

Swaps …

…


Banks (retail)


…

…

…

…

"Cash" (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

Swaps

Swaps

(collat.) < (collat.)

"Cash" (o/n) …

<

FF (o/n)

P-Loans (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

Public Backstops




…

FF (o/n)

Dealer Banks (CDS)

…

Equity (temporary)

<

P-Repos (o/n)

…


P-Repos (term)

…

Equity

FF (o/n)

Equity (permanent)


…

(temporary)


…

P-Repos ( (term)


…


…


Equity (permanent)

…

Dealer Banks (IRS and FXS)

P-Bills (term)

T-Notes P-Notes


T-Repos (term)

Swaps

…

Type 3:

T-Notes

(uncoll.)

…

(collat.)

"Cash" (o/n)

T-Bills (term)


T-Bills (o/n)

T-Repos (term)

Equity (temporary)

Type 2:

Reserves (o/n)

<

…

T-Repos (term)

T-Repos (term)


Assets

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collat.)

99

…

"Cash" (term)

Swaps

Swaps …

…


Banks (retail)


…

…

…

…

"Cash" (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

Swaps

Swaps


"Cash" (o/n) …

<

FF (o/n)

P-Loans (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

Public Backstops




…

FF (o/n)

Dealer Banks (CDS)

…

Equity (temporary)

<

P-Repos (o/n)

…


P-Repos (term)

…

Equity

FF (o/n)

Equity (permanent)


…

(temporary)


…

P-Repos ( (term)


…


…


Equity (permanent)

…


P-Bills (term)

T-Notes P-Notes


T-Repos (term)

Swaps

…

Type 3:

T-Notes

(uncoll.)

…

(collat.)

"Cash" (o/n)

T-Bills (term)


T-Bills (o/n)

T-Repos (term)

Equity (temporary)

Type 2:

Reserves (o/n)

<

…

T-Repos (term)

T-Repos (term)


Assets

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collat.)

100

…

"Cash" (term)

Swaps

Swaps …

…


Banks (retail)


…

…

…

…

"Cash" (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

Swaps

Swaps


"Cash" (o/n) …

<

FF (o/n)

P-Loans (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

Public Backstops




…

FF (o/n)

Dealer Banks (CDS)

…

Equity (temporary)

<

P-Repos (o/n)

…


P-Repos (term)

…

Equity

FF (o/n)

Equity (permanent)


…

(temporary)


…

P-Repos ( (term)


…


…


Equity (permanent)

…


P-Bills (term)

T-Notes P-Notes


T-Repos (term)

Swaps

…

Type 3:

T-Notes

(uncoll.)

…

(collat.)

"Cash" (o/n)

T-Bills (term)


T-Bills (o/n)

T-Repos (term)

Equity (temporary)

Type 2:

Reserves (o/n)

<

…

T-Repos (term)

T-Repos (term)


Assets

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collat.)

101

…

"Cash" (term)

Swaps

Swaps …

…


Banks (retail)

…

…

Swap receivs.

…

<

P-Repos (o/n)

…

P-Repos (term)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

Swaps

Swaps …

…

"Cash" (o/n)

…


…

<

FF (o/n)

Equity

P-Loans (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

(temporary)


Public Backstops




…

FF (o/n)

Dealer Banks (CDS)

…

Swap payables

FF (o/n)

Equity (permanent)


…

…


Private Assets

…

Equity

Reserves (o/n) <


…


…


Equity (permanent)

…


P-Bills (term)

(temporary)

Margin call CDS IRS FXS

T-Repos (term)

Swaps

T-Notes P-Notes

…

Type 3:

T-Notes

(uncoll.)

P-Repos ( (term)

(collat.)

"Cash" (o/n)

T-Bills (term)


T-Bills (o/n)

T-Repos (term)

Equity (temporary)

Type 2:

Reserves (o/n)

<

…

T-Repos (term)

T-Repos (term)


Assets

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collat.)

102

…

Swaps

…

…

…


Assets

Banks (retail)


…

…

Swap receivs.

…

<

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

Swaps

Swaps

…

"Cash" (o/n)

…


…

<

FF (o/n)

Equity

P-Loans (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

(temporary)


Public Backstops


…



…

FF (o/n)

Dealer Banks (CDS)

…

[A]

P-Repos (o/n)

…

P-Repos (o/n)

FF (o/n)

Equity (permanent)


…

…

Equity

Private Assets

…

Reserves (o/n) <


…

Swaps


Equity (permanent)


P-Bills (term)

(temporary)

Cash (margin) CDS IRS FXS


Swaps

T-Notes P-Notes

…

Type 3:

"Cash" (term)

(uncoll.)

P-Repos ( (term)

(collat.)

T-Repos (term)

T-Bills (term)


"Cash" (o/n)

Equity (temporary)

Type 2:

T-Bills (o/n)

T-Repos (term)

T-Notes


<

…

T-Repos (term)

T-Repos (term)

…

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collat.)

103

…

Swaps

…

…

…


Assets

Banks (retail)

Risk PM (tactical hedger) [A]

…

…

<

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

Banks (wholesale)

Swaps

Swaps

…

"Ca sh" (o/n)

…


Equity

P-Loans (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

(temporary)


Public Backstops


…



…

<

FF (o/n)

"Cash" (term)

…

FF (o/n)

Dealer Banks (CDS)

Swap receivs.

…

[B]

P-Repos (o/n)

Equity (permanent)


…

P-Repos (o/n)

FF (o/n) …

…

Equity

Private Assets

…

Reserves (o/n) <


…

Swaps


Equity (permanent)


P-Bills (term)

(temporary)



Swaps

T-Notes P-Notes

…

Type 3:

"Cash" (term)

(uncoll.)

P-Repos ( (term)

(collat.)

T-Repos (term)

T-Bills (term)


"Cash" (o/n)

Equity (temporary)

Type 2:

T-Bills (o/n)

T-Repos (term)

T-Notes


<

…

T-Repos (term)

T-Repos (term)

…

T-Notes



…

Type 1:


T-Notes


…


Public Assets



…

Money dealing:

Cash (collat.)

104

…

Dealer Banks (IRS and FXS) Swaps

Swaps

…

P-Bills (term)

"Cash" (term)

Assets

…

"Cash" (o/n)

…


Banks (retail)


…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

Swaps

Swaps …

…

"Cash" (o/n)

…


…

<

FF (o/n)

Equity

P-Loans (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

(temporary)


Public Backstops


…



…

FF (o/n)

Dealer Banks (CDS)

…

P-Repos (o/n)

FF (o/n)

Equity (permanent)


…

…

Equity

Private Assets

…

(temporary)

Reserves (o/n) <


Equity (permanent)


Swaps

P-Repos ( (term)

…

"Cash" (term)

(uncoll.)

T-Notes P-Notes


T-Repos (term)

T-Bills (term)

Risk PM (cash for shorting) (collat.)

"Cash" (o/n)

Equity (temporary)

Cash

T-Bills (o/n)

T-Repos (term)

T-Notes


<

…

T-Repos (term)

T-Repos (term)

…

T-Notes



…


T-Notes


…

Public Assets

Money market funding of capital market lending (see Mehrling et al, 2013).


…

Where is the real economy?

Cash (collat.)

105


Swaps

Swaps …

…

"Cash" (o/n)

…


P-Bills (term)

"Cash" (term)

Banks (retail)


…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

Swaps

Swaps …

…

"Cash" (o/n)

…


…

<

FF (o/n)

Equity

P-Loans (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

(temporary)


Public Backstops




…

FF (o/n)

Dealer Banks (CDS)

…

P-Repos (o/n)

FF (o/n)

Equity (permanent)


…

…

Equity

Private Assets

…

(temporary)

Reserves (o/n) <


Equity (permanent)


Swaps

P-Repos ( (term)

…

T-Bills (o/n)


(uncoll.)

T-Notes P-Notes


"Cash" (term)

T-Bills (term)


T-Repos (term)

Equity (temporary)

Cash

Reserves (o/n)

"Cash" (o/n)

…

T-Repos (term)

T-Repos (term)

T-Notes


Assets

T-Notes (global)

<

…

[1]

T-Repos (term)

…

Public Assets

[1] Funded risk PMs’ securities portfolios,…


…

T-Notes


…

Money market funding of capital market lending…


…


…


Cash (collat.)

106


Swaps

Swaps …

…

"Cash" (o/n)

…


P-Bills (term)

"Cash" (term)

Banks (retail)


…

…

…

…

…

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Swaps

Swaps


"Cash" (o/n)

P-Loans (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

Public Backstops




…

<

FF (o/n)

Dealer Banks (CDS)

…

FF (o/n) [2]

"Cash" (o/n)

…

Equity (temporary)

<

P-Repos (o/n)

P-Loans (local)

Banks (wholesale)

…

P-Repos (o/n)

P-Repos (o/n)

…


FF (o/n)

Equity (permanent)


…

…

Equity

Private Assets

…

(temporary)

Reserves (o/n) <


Equity (permanent)


Swaps

P-Repos ( (term)

…

T-Bills (o/n)


(uncoll.)

T-Notes P-Notes


"Cash" (term)

T-Bills (term)


T-Repos (term)

Equity (temporary)

Cash

Reserves (o/n)

"Cash" (o/n)

…

T-Repos (term)

T-Repos (term)

T-Notes


Assets

T-Notes (global)

<

…

[1]

T-Repos (term)

…

Public Assets

[2] Foreign banks’ USD securities portfolios,…


…

T-Notes


…



…


…


Cash (collat.)

107


Swaps

Swaps …

…

"Cash" (o/n)

…


P-Bills (term)

"Cash" (term)

Banks (retail)


…

…

…

…

…

"Cash" (o/n)

Deposits (term)

P-Notes

P-Repos (term)

"Cash" (term)

Banks (wholesale)

[2] P-Notes [3] (global)

<

FF (o/n)

Swaps

Swaps


"Cash" (o/n)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

Public Backstops




…

FF (o/n)

Dealer Banks (CDS)

…

Equity (temporary)

<

P-Repos (o/n)

…

…

P-Repos (o/n)

P-Repos (o/n)

…


FF (o/n)

Equity (permanent)


P-Loans (local)

…

…

Equity

Private Assets

…

(temporary)

Reserves (o/n) <


Equity (permanent)


Swaps

P-Repos ( (term)

…

T-Bills (o/n)


(uncoll.)

T-Notes P-Notes


"Cash" (term)

T-Bills (term)


T-Repos (term)

Equity (temporary)

Cash

Reserves (o/n)

"Cash" (o/n)

…

T-Repos (term)

T-Repos (term)

T-Notes


Assets

T-Notes (global)

<

…

[1]

T-Repos (term)

…

Public Assets

[3] Large U.S. banks’ securities portfolios,…


…

T-Notes


…



…


…


Cash (collat.)

108

Public Assets

[4] Dealer banks’ securities inventories (net financing). Risk PM (cash for funding)

T-Bills (o/n)

Swaps

Swaps …

…

"Cash" (o/n)

…


P-Bills (term)

"Cash" (term)

Banks (retail)


…

…

…

…

…

P-Notes (global)

P-Repos (term)

"Cash" (term)

Banks (wholesale)


<

FF (o/n)

Dealer Banks (CDS) Swaps

Swaps


"Cash" (o/n)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

Public Backstops




…

FF (o/n)

"Cash" (o/n)

…

Equity (temporary)

[4]

<

P-Repos (o/n)

…

…

P-Repos (o/n)

Deposits (term)

P-Repos (o/n)

Equity (permanent)


…


FF (o/n)

P-Loans (local)

…

…

Equity

Private Assets

…

(temporary)

Reserves (o/n) <


Equity (permanent)


Swaps

P-Repos ( (term)

…


(uncoll.)

T-Notes P-Notes


"Cash" (term)

T-Bills (term)


T-Repos (term)

Equity (temporary)

Cash

Reserves (o/n)

"Cash" (o/n)

…

T-Repos (term)

T-Repos (term)

T-Notes (global)


Assets

T-Notes (global)

[4]

<

…

[1]

T-Repos (term)

…


…

T-Notes


…



…


…


Cash (collat.)

109

…

…

…

…

"Cash" (term)

Banks (retail)


…

P-Notes (global)

P-Repos (term)

"Cash" (term)

Banks (wholesale)

Swaps

Swaps


"Cash" (o/n)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

Public Backstops


…



…


<

FF (o/n)

Dealer Banks (CDS)

…

FF (o/n)

"Cash" (o/n)

…

…

[4]

<

P-Repos (o/n)

…

…

Deposits (term)

P-Repos (o/n)

…

Equity (temporary)

FF (o/n)

Equity (permanent)


…

…

P-Repos (o/n)


P-Loans (local)

…

…

Equity


…

(temporary)

…

"Cash" (o/n)

P-Bills (term)

T-Notes P-Notes


Swaps

Swaps

Risk PM (cash for margining) [Ø]

Swaps


Equity (permanent)


(uncoll.)

P-Repos ( (term)

(collat.)

"Cash" (term)

T-Bills (term)


T-Repos (term)


T-Bills (o/n)

"Cash" (o/n)

Equity (temporary)

[Ø]

T-Repos (term)

T-Notes (global)


<

…

T-Repos (term)

[4]

Assets

T-Notes (global)

T-Repos (term)

…

[1]



…


T-Notes


…

Public Assets

Most repos are responsible for facilitating price discovery in a market making context, but not funding the real economy directly.


…

Not all repos are equal:

Cash (collat.)

110

…

…

Money Funds (government-only) <

T-CNAVs (o/n)

"Cash" (o/n)

Assets

…

RRPs (o/n) …

T-Bills (o/n)

Banks (retail)


…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

RRPs (o/n)

P-Loans (local)

Deposits (term)

P-Notes (global)

P-Repos (term)

"Cash" (term)

Banks (wholesale)

"Cash" (o/n) …

<

P-CNAVs (o/n)

…

RRPs (o/n)

…

<

FF (o/n)

Equity

P-Notes (global)

Deposits (term)

P-Bills (term)

"Cash" (term)

(temporary)


Public Backstops


…



…

FF (o/n)

Money Funds (prime)

…

P-Repos (o/n)

FF (o/n)

Equity (permanent)


…

…

Equity

Private Assets

…

(temporary)

Reserves (o/n) <


Equity (permanent)


"Cash" (term)

P-Repos ( (term)

…

"Cash" (term)

T-Bills (term)

T-Notes P-Notes


T-Repos (term)

T-Bills (term)


T-Notes (global)

Equity (temporary)

Cash

T-Repos (o/n)

Currency Reserves Sovereign (U.S. Treasury) Reserves (o/n)

"Cash" (o/n)

<

…

T-Repos (term)

RRPs (o/n)

…

T-Notes (global)

RRPs (o/n)


…


T-Notes


…

Public Assets

Through RRPs, the Fed will have direct control over haircuts and leverage. Fed haircuts will be the floor.


…

RRPs and risk PMs:

Cash (collat.)

111

…

…

Money Funds (government-only) <

T-CNAVs (o/n)

"Cash" (o/n)

Assets

…

RRPs (o/n) …

T-Bills (o/n)

Banks (retail)


…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

RRPs (o/n)

P-Loans (local)

Deposits (term)

P-Notes (global)

P-Repos (term)

"Cash" (term)

Banks (wholesale)

"Cash" (o/n) …

<

P-CNAVs (o/n)

…

RRPs (o/n)

…

<

FF (o/n)

Equity

P-Notes (global)

Deposits (term)

P-Bills (term)

"Cash" (term)

(temporary)


Public Backstops


…



…

FF (o/n)

Money Funds (prime)

…

P-Repos (o/n)

FF (o/n)

Equity (permanent)


…

…

Equity

Private Assets

…

(temporary)

Reserves (o/n) <


Equity (permanent)


"Cash" (term)

P-Repos ( (term)

…

"Cash" (term)

T-Bills (term)

T-Notes P-Notes


T-Repos (term)

T-Bills (term)


T-Notes (global)

Equity (temporary)

Cash

T-Repos (o/n)

Currency Reserves Sovereign (U.S. Treasury) Reserves (o/n)

"Cash" (o/n)

<

…

T-Repos (term)

RRPs (o/n)

…

T-Notes (global)

RRPs (o/n)


…


T-Notes


…

Public Assets

Fed will have control over market-based credit cycles. This will raise the cost of leverage for risk PMs and reduce seclending volumes.


…

RRPs and risk PMs:

Cash (collat.)

112



Public Assets

Albert Einsteinxxxx Risk PM (cash for funding)

Swaps

Swaps

…

P-Bills (term)

"Cash" (term)

Assets

…

"Cash" (o/n)

…


Banks (retail)


…

…

"Cash" (o/n)

…

<

P-Repos (o/n)

…

P-Repos (o/n)

P-Loans (local)

Deposits (term)

P-Notes (global)

P-Repos (term)

"Cash" (term)

Banks (wholesale)

Swaps

Swaps …

…

"Cash" (o/n)

…


…

<

FF (o/n)

Equity

P-Notes (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

"Cash" (term)

(temporary)


Public Backstops


…



…

FF (o/n)

Dealer Banks (CDS)

…

P-Repos (o/n)

FF (o/n)

Equity (permanent)


…

…

Equity

Private Assets

…

(temporary)

Reserves (o/n) <


Equity (permanent)


Swaps

P-Repos ( (term)

…


(uncoll.)

T-Notes P-Notes


"Cash" (term)

T-Bills (term)


T-Repos (term)

Equity (temporary)

Cash

T-Bills (o/n)

"Cash" (o/n)

T-Notes (global) Sovereign (U.S. Treasury) Reserves (o/n)

T-Repos (term)

…

T-Repos (term)

<

…

T-Notes (global)

T-Repos (term)

…



…

T-Notes


…


…

“If you can’t explain it to a six year old you don’t understand it yourself.”

Cash (collat.)

114


Public Assets

Albert Einsteinxxxx Risk PM (cash for funding)

Swaps

…

…

P-Bills (term)

Assets

Swaps

Banks (retail)


…

<

P-Loans (local)

Deposits (term)

P-Notes (global)

P-Repos (term)

Banks (wholesale)

Swaps

Swaps …

Equity

P-Notes (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

(temporary)


(temporary)


…

FF (o/n) …

<

CDS IRS FXS Equity

Dealer Banks (CDS)

…

FF (o/n)

"Cash"

P-Repos (o/n)

…

P-Repos (o/n)

…

P-Repos (o/n)

FF (o/n) …

…

Equity

Cash PM (search for safety)


…

…

(temporary)


P-Repos ( (term)

…

Swaps


(uncoll.)

T-Notes P-Notes


T-Bills (o/n)


T-Bills (term)


T-Repos (term)

Equity (temporary)

Cash

T-Notes (global) Sovereign (U.S. Treasury) Reserves (o/n)

T-Repos (term)

…

T-Repos (term)

<

…

T-Notes (global)

T-Repos (term)

…

T-Notes


…


…


Public Backstops


115


Public Assets

Albert Einsteinxxxx Risk PM (search for yield)

T-Notes (global)

T-Repos (term)


Swaps

Swaps


Equity

T-Bills (term)

Swaps (uncoll.)

P-Bills (term)

(temporary)

Assets

…

T-Bills (o/n)


…

Reserves (o/n)

T-Repos (term)

…

T-Repos P-Repos

<

…

T-Notes P-Notes CDS IRS FXS

T-Repos (term)

…

T-Notes


Banks (retail)


…

…

<

Deposits (term)

P-Notes (global)

P-Repos (term)

Banks (wholesale)

(temporary)

Swaps

Swaps …


…

FF (o/n)

Dealer Banks (CDS)

…

<

CDS IRS FXS Equity

P-Repos (o/n)

…

P-Repos (o/n)

…

FF (o/n)

P-Loans (local)

FF (o/n)

"Cash"


…

Private Assets

Reserves (o/n) <

Cash PM (search for safety) …


…


P-Notes (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

Public Backstops


116


Public Assets


Trading inventory

Financing (net)


Swaps

Swaps


Equity

T-Bills (term)

Swaps (uncoll.)

P-Bills (term)

(temporary)

Assets

…

T-Bills (o/n)


…

Reserves (o/n)

Matched books

…

T-Repos P-Repos

<

…


Matched books

Banks (retail)


…

…

<

Deposits (term)

Trading inventory

Financing (net)

Banks (wholesale)

(temporary)

Swaps

Swaps …


…

FF (o/n)

Dealer Banks (CDS)

…

<

CDS IRS FXS Equity

Matched books

…

Matched books

…

FF (o/n)

P-Loans (local)

FF (o/n)

"Cash"

Money Dealers (cash for collateral)

…

Private Assets

Reserves (o/n) <


T-Notes


…


…


P-Notes (global)

Deposits (term)

Swaps (uncoll.)

P-Bills (term)

Public Backstops


117


Public Assets


Financing (net)

Risk Dealers (risk for collateral) Matched books

<

Matched books

Equity

T-Bills (term)

Trading inventory

Financing (net)

(temporary)

Assets

…

T-Bills (o/n)

Trading inventory

…

Reserves (o/n)

Matched books

…

T-Repos P-Repos

<

…



Matched books

Banks (retail)


…

…

<

Deposits (term)

Trading inventory

Financing (net)

Banks (wholesale)

(temporary)

<

Matched books …

Matched books …

FF (o/n)

Risk Dealers (risk for collateral)

…

<

CDS IRS FXS Equity

Matched books

…

Matched books

…

FF (o/n)

P-Loans (local)

FF (o/n)

"Cash"


…

Private Assets

Reserves (o/n) <


T-Notes


…


…


P-Notes (global)

Deposits (term)

Trading inventory

Financing (net)

Public Backstops


118

Central Bank (Federal Reserve) T-Notes


Public Assets


Matched books

<

Matched books

Equity

T-Bills (term)

Trading inventory

Financing (net)

(temporary)

Assets

…

T-Bills (o/n)

…

Reserves (o/n)

…

T-Repos P-Repos


…



Banks (retail)


"Cash"



…

…

<

Matched books

…

Matched books

…

FF (o/n)

P-Loans (local)

Deposits (term)

Trading inventory

Financing (net)

Banks (wholesale) <

FF (o/n) …

FF (o/n) …

Private Assets

Reserves (o/n) <



P-Notes (global)

Deposits (term)

Public Backstops


119

“If you can’t explain it to a six year old you don’t understand it yourself.” Albert Einsteinxxxx

<

Matched books …

Matched books …

T-Repos P-Repos …



Equity

Trading inventory

Financing (net)

(temporary)

Cash PM (search for safety) "Cash"

…

Risk PM (search for yield)




…

<

Matched books

…

Matched books Trading inventory

Financing (net)

120

The dealer eco-system:

<

Matched books

…

Matched books

…

T-Repos P-Repos

…


Money Dealer (cash for collateral)

Equity

Trading inventory

Financing (net)

(temporary)


…


"Cash"


Risk Dealer (risk for collateral)

…

<

Matched books

…


Financing (net)

Source: Mehrling et al (2013) – Bagehot Was a Shadow Banker

121

The dealer eco-system: Risk and cash PMs…

<

Matched books

…

Matched books

…

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)


…


"Cash"



…

<

Matched books

…


Financing (net)


122

The dealer eco-system: Risk and cash PMs and money and risk dealers.

<

Matched books

…

Matched books

…

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)


…


"Cash"



…

<

Matched books

…


Financing (net)


123

The dealer eco-system: Risk and cash PMs and money and risk dealers. Matched book…

<

Matched books

…

Matched books

…

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)


…


"Cash"



…

<

Matched books

…


Financing (net)


124

The dealer eco-system: Risk and cash PMs and money and risk dealers. Matched book and “inventory” (net) positions.

<

Matched books

…

Matched books

…

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)


…


"Cash"



…

<

Matched books

…


Financing (net)


125

Search for yield versus search for safety: Risk PMs are security rich but return poor. They always search for yield. Cash PMs are cash rich but safety poor. They primarily search for safety.

<

Matched books

…

Matched books

…

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)


…


"Cash"




…

<

Matched books

…


Financing (net)

126

Natural complements: Risk PMs repo securities out and cash in. Cash PMs repo cash out and securities in.

<

Matched books

…

Matched books

…

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)


…


"Cash"



…

<

Matched books

…


Financing (net)

Securities Out

Securities In

Cash In

Cash Out


127

The role of collateral: Collateral gives sense of safety for cash lenders. Cash enables risk taking via funding and shorting.

<

Matched books

…

Matched books

…

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)


…


"Cash"



…

<

Matched books

…


Financing (net)

Securities Out

Securities In

Cash In

Cash Out


128

The role of collateral: Swaps positions give rise to un-secured derivatives receivables for those in the money. Collateral gives sense of safety for those in the money, who are de facto cash lenders.

<

Matched books

…

Matched books

…

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)


…


"Cash"



…

<

Matched books

…


Financing (net)

Securities Out

Securities In

Cash In

Cash Out


129

Sizing the U.S. repo market: $ trillions as of 2012Q2 Cash PMs placed over $3 trillion in cash with dealers. Of this, $2.5 trillion were lent on, with the difference used to finance inventories. Risk PMs absorbed $2 trillion in funding.

Matched books

<

Matched books

…

DvP

…

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)

Cash PM (search for safety) TRP DvP

…


"Cash"


GCF (inter-dealer) Reverse Repo Transactions

Repo Transactions

$2,446

Total

$2,446

$3,035

Total

$3,035

$463 $1,983

GCF DvP

$463 $1,983

$463 $1,608 $964

GCF TRP DvP

$463 $1,608 $964

-

Net

$589

-

-

-

Securities Out

Securities In

Cash In

Cash Out

Source: Pozsar (2014) and Copeland et al (2012)

130

Money dealing using public bonds by motive: $ trillions 4,000 3,500

3,000

2,500

2,000

1,500

1,000

500

0

Assets

Liabilities

Assets

Q2-07 Secs. In [SI]

RRs [SI]

Secs. Borrowed [SI]

Liabilities Q3-13

Secs. Out [SO]

Source: Haver, Federal Reserve Bank of New York

RPs [SO]

Secs. Loaned [SO]

Balance

131

Money dealing using private bonds by motive: $ trillions 500 450

400

350

300

250

200

150

100

50

0

Assets

Liabilities

Assets

Q2-07 Secs. In [SI]

RRs [SI]

Secs. Borrowed [SI]

Liabilities Q3-13

Secs. Out [SO]

Source: Haver, Federal Reserve Bank of New York

RPs [SO]

Secs. Loaned [SO]

Balance

132



Macro imbalances shaping the eco-system: Present and future macro imbalances shape the contours of the global financial eco-system. What dealer banks do is a reflection of the eco-system they inhabit. Imbalances (future)

Matched books

<

Matched books …

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)



…

Macro Drivers (global and local)

Imbalances (present)

"Cash"





…

<

Matched books

…


Financing (net)

Securities Out

Securities In

Cash In

Cash Out 134

Macro imbalances shaping the eco-system: The secular rise of cash PMs has been driven by… [1] the secular rise of managed FX regimes and FX reserves’ so-called “liquidity tranches”. Imbalances (future)

Matched books

<

Matched books …

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)



…



"Cash"

CDS IRS FXS Equity

Macro Drivers (global and local) Managed FX Regimes

(temporary)



…

<

Matched books

…


Financing (net)

Securities Out

Securities In

Cash In

Cash Out 135

[1]

Macro imbalances shaping the eco-system: The secular rise of cash PMs has been driven by… [2] the secular rise of corporate profits vs. stagnant wages and capex (see Summers, 2013). Imbalances (future)

Matched books

<

Matched books …

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)



…



"Cash"

CDS IRS FXS Equity

Macro Drivers (global and local) Managed FX Regimes Capital vs. Labour

(temporary)



…

<

Matched books

…


Financing (net)

Securities Out

Securities In

Cash In

Cash Out 136

[1] [2]

Macro imbalances shaping the eco-system: The secular rise of cash PMs has been driven by… [3] the secular rise of a highly concentrated asset management complex (see OFR, 2013). Imbalances (future)

Matched books

<

Matched books …

T-Repos P-Repos

…



Equity

Trading inventory

Financing (net)

(temporary)



…



"Cash"

CDS IRS FXS Equity

Macro Drivers (global and local) Managed FX Regimes Capital vs. Labour Cash Pooling (AMX)

(temporary)



…

<

Matched books

…


Financing (net)

Securities Out

Securities In

Cash In

Cash Out 137

[1] [2] [3]

Macro imbalances shaping the eco-system: The secular rise of risk PMs has been driven by… [4] the secular rise in underfunded pension promises (see Caballero, 2013). Imbalances (future)

Matched books

<

Matched books

Equity

Trading inventory

Financing (net)

(temporary)


T-Repos P-Repos

…



…

[4] Underfunded Pensions


…



"Cash"

CDS IRS FXS Equity


(temporary)



…

<

Matched books

…


Financing (net)

Securities Out

Securities In

Cash In

Cash Out 138

[1] [2] [3]

Macro imbalances shaping the eco-system: The secular rise of risk PMs has been driven by… [5] the secular rise in FX reserves’ sterilization costs (see Borio et al, 2008). Imbalances (future)

Matched books

<

Matched books

Equity

Trading inventory

Financing (net)

(temporary)


T-Repos P-Repos

…



…

[4] Underfunded Pensions [5] Sterilization Costs


…



"Cash"

CDS IRS FXS Equity


(temporary)



…

<

Matched books

…


Financing (net)

Securities Out

Securities In

Cash In

Cash Out 139

[1] [2] [3]

Macro imbalances shaping the eco-system: The secular rise of risk PMs has been driven by… [6] the secular decline in yields and un-changed return expectations (see BlackRock, 2013). Imbalances (future)

Matched books

<

Matched books

Equity

Trading inventory

Financing (net)

(temporary)


T-Repos P-Repos

…



…

[4] Underfunded Pensions [5] Sterilization Costs [6] "Rosy" Expectations


…



"Cash"

CDS IRS FXS Equity


(temporary)



…

<

Matched books

…


Financing (net)

Securities Out

Securities In

Cash In

Cash Out 140

[1] [2] [3]

Four simple goals that make the eco-system go ‘round: [1] CIOs aim to generate enough return to fulfil their mandate to “meet liabilities”. This is why CIOs look beyond long-only strategies and allocate to leveraged risk PMs. Imbalances (future)

Matched books

<

Matched books

Equity

Trading inventory

Financing (net)

(temporary)


T-Repos P-Repos

…



…

Underfunded Pensions Sterilization Costs "Rosy" Expectations


…



"Cash"

CDS IRS FXS Equity


(temporary)


…

<

Matched books

…


Financing (net)

CIOs "Meet Liabilities"


141

Four simple goals that make the eco-system go ‘round: [2] Risk PMs aim to generate enough return to fulfil their mandate to “beat benchmarks”. Risk PMs get leverage from dealers, who get the cash to provide leverage from cash PMs. Imbalances (future)

Matched books

<

Matched books

Equity

Trading inventory

Financing (net)

(temporary)


T-Repos P-Repos

…



…



…



"Cash"

CDS IRS FXS Equity


(temporary)




…

<

Matched books

…


Financing (net)

Risk PMs "Beat the Benchmark" 142

Four simple goals that make the eco-system go ‘round: [3] Cash PMs aim to generate some return while fulfilling their mandate to “do not lose”. Cash PMs minimize credit risk by lending against collateral and are fanned by imbalances. Imbalances (future)

Matched books

<

Matched books

Equity

Trading inventory

Financing (net)

(temporary)


T-Repos P-Repos

…



…



…



"Cash"

CDS IRS FXS Equity


(temporary)




Risk PMs "Beat the Benchmark"

…

<

Matched books

…


Financing (net) Cash PMs "Do Not Lose" 143

Four simple goals that make the eco-system go ‘round: [4] CEOs at both the corporate and national levels are mandated to “grow” their profits and economies, respectively and this contributes to the skewed distribution of present incomes. Imbalances (future)

Matched books

<

Matched books

Equity

Trading inventory

Financing (net)

(temporary)


T-Repos P-Repos

…



…



…



"Cash"

CDS IRS FXS Equity


(temporary)





…

<

Matched books

…


Financing (net) Cash PMs "Do Not Lose"

CEOs "Grow" 144



Implications for macro and asset price models: These goal-driven rigidities are not included in asset price models. Topics for future research include the extent to which these compress the 10-year Treasury term premium. Imbalances (future)

Matched books

<

Matched books

Equity

Trading inventory

Financing (net)

(temporary)


T-Repos P-Repos

…



…



…



"Cash"

CDS IRS FXS Equity


(temporary)





…

<

Matched books

…



CEOs "Grow" 146

Implications for global macro-financial accounting: None of these aspects of the eco-system are measured by the U.S. Flow of Funds Accounts. The Flow of Funds accounts need a set of Flow of Collateral and Flow or Risk satellite accounts. Imbalances (future)

Matched books

<

Matched books

Equity

Trading inventory

Financing (net)

(temporary)


T-Repos P-Repos

…



…



…



"Cash"

CDS IRS FXS Equity


(temporary)





…

<

Matched books

…



CEOs "Grow" 147

Implications for governance:

Level II

Level I

Level II

Level III

G20

?

FSB

?

G20






Matched books

<

Matched books …

T-Repos P-Repos

…


…


Equity

Trading inventory

Financing (net)

(temporary)

…

Level III

"Cash"

CDS IRS FXS Equity

Managed FX Regimes Capital vs. Labour Cash Pooling (AMX)

(temporary)





…

<

Matched books

…



CEOs "Grow" 148

Conclusions:

A Macro View on Shadow Banking

149

1. Bond portfolios are getting more and more leveraged and bonds are becoming more and more valuable as collateral. 2. Leveraged bond portfolios help asset-liability matching in an ever-lower yield environment and collateral gives cash pools safety in a system w/ an outdated safety net. 3. Credit, maturity and liquidity transformation is a start, but ask “why”: to manage future and present imbalances. 4. Credit transformation: bond-like volatility and equitylike returns to help CIOs meet future promises (“theme”).

5. Maturity and liquidity transformation: safe, short-term assets for the safekeeping of skewed incomes (“theme”). 6. RRPs are about more than just controlling short rates. They give shadow banks access to a reserve account at the Fed, and are a first step toward “dealer of last resort”. 150

References:

151

Pozsar, Zoltan, 2014, “Shadow Banking: The Money View,” Office of Financial Research (OFR) Working Paper(forthcoming). Pozsar, Zoltan, 2013, “Shadow Banking and the Global Financial Eco-System,” VoxEU. Mehrling, Perry, Pozsar, Zoltan, Sweeney, James, Neilson, Dan, 2013, “Bagehot Was a Shadow Banker: Shadow Banking, Central Banking and the Future of Global Finance,” INET Working Paper.

Claessens, Stijn, Pozsar, Zoltan, Singh, Manmohan, Lev, Ratnovski 2013, “Shadow Banking: Economics and Policy,” IMF SDN 12/12. Pozsar, Zoltan and McCulley, Paul, 2012, “Why Banking Works One Large Confidence Trick,” Financial Times. Pozsar, Zoltan and Singh, Manmohan, 2011, “The Nonbank-Bank Nexus and the Shadow Banking System,” IMF WP 11/289. Pozsar, Zoltan, 2011, “Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System,” IMF WP 11/190. 152

Data Appendix:

153

U.S. Chartered Banks: $ billions

12,000

[1]

10,000

[1] [2]

8,000

[2]

6,000

4,000

[3]

[3] 2,000

0 Assets

Liabilities

Assets

Liabilities

Q2-07 Loans

PRBs

PUBs

RRs

FF lent

Q3-13 Reserves

Balance

DDs

SDs

LDs

RPs

Source: Haver, Federal Reserve Z.1, H.8 and author’s calculations

GDF

FF borrowed

154

New York Branches of Foreign Banks: $ billions

2,500

[1]

2,000

1,500

[1]

[2]

[2]

1,000

[3]

[3] 500

[4]

[4] 0 Assets

Liabilities

Assets

Liabilities

Q2-07 Loans

PRBs

PUBs

RRs

FF lent

Q3-13 Reserves

Balance

DDs

SDs

LDs

RPs

Source: Haver, Federal Reserve Z.1, H.8 and author’s calculations

FF borrowed

GDF

155

Dealer Banks’ “Government” Trading Desks: $ billions

3,000

Securities In

Securities Out

Cash Out

Cash In

2,500

[4]

2,000

[3]

1,500

[2]

1,000

[1]

500

0

Assets

Liabilities Q3-13

RR [o/n]

SB [o/n]

RR [< 30]

SB [< 30]

RR [30+]

SB [30+]

SL [o/n]

RP [< 30]

SL [< 30]

RP [30+]

SL [30+]

Net financing

Source: Haver, New York Fed (FR 2004) and author’s calculations

RP [o/n]

156

Dealer Banks’ “Credit” Trading Desks: $ billions

250

Securities In

Securities Out

Cash Out

Cash In

200

[3] 150

100

[2]

50

[1]

0 Assets

Liabilities Q3-13

RR [o/n]

SB [o/n]

RR [term]

SB [term]

RP [o/n]

SL [o/n]

RP [term]

SL [term]

Source: Haver, New York Fed (FR 2004) and author’s calculations

Net financing

157

Government-Only Money Funds: $ billions

1,000

900

800

700

[2] 600

[2]

500

400

300

[1]

200

[1] 100

0 Assets

Liabilities

Assets

2007 Repos

T-Bills

Liabilities January 2014

T-Notes w/ RM < 1 Yr.

Source: Haver, SEC and author’s calculations

GSEs

Other

CNAV [o/n]

158

Prime Money Funds: $ billions

2,000

1,800

[4]

1,600

[4]

1,400

1,200

1,000

[3] [3]

800

600

400

[2] [2]

200

[1]

[1] 0 Assets

Liabilities

Assets

2007 Repos [o/n]

T-Bills

Liabilities

January 2014 T-Notes w/ RM < 1 Yr.

Source: Haver, SEC and author’s calculations

GSEs

LTDs

CP

Other

CNAV [o/n]

159

Mortgage REITs: $ billions

350

300

250

200

150

100

50

0 Assets

Liabilities

Assets

Q2-07

Q3-13 Balance

Source: Haver, Federal Reserve Z.1

Liabilities

Agency RMBS

Repos

160

Offshore Dollar Banking: $ trillions

10

9

8

7

6

5

4

3

2

1

0 Assets

Liabilities Q2-07 Balance

Source: BIS

Assets

Liabilities Q3-13

U.S. dollar assets

U.S. dollar liabilities

161

How the Financial System Works

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