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Shadow banking

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Shadow banking
Shadow Banking
CEPR, October 4, 2010
Tobias Adrian, FRBNY* with Zoltan Pozsar, Adam Ashcraft, Hayley Boesky

*The

views expressed in this presentation are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.

What Are Shadow Banks?
• Shadow banks are financial entities that conduct either all three or any one of the classic bank functions:
1. credit transformation,
2. maturity transformation,
3. liquidity transformation…
• …but without the liquidity and credit puts provided by the discount window and deposit insurance.
• Traditional banks did not become stable until the establishment of the Fed and FDIC in 1913 and 1933, respectively.
2

Shadow Banking System is a web of
Specialized Financial Institutions
`

The Shadow Banking System - Preliminary Draft for Comments; Do Not Forward Without Permission of Authors

Designed by Zoltan Pozsar (zoltan.pozsar@ny.frb.org)
The Federal Reserve Bank of New York, March, 2010
The Traditional Banking System

Traditional Bank Liabilities

Assets
Loans

Cash
Flows

Bonds
Equity

Deposits

Loans

Equity

Discount Window
Loan
Collateral

Agency Debt Purchases
Agency
Debt

Reserves
Equity

Agency MBS Purchases
Agency
MBS

Reserves

11/25/2008

Loans

Depositors

Deposit Funding

Commercial Banks
Borrowers

Loans
Assets

Traditional Banks' Funding Sources

Short-Term Funding
Deposits
Checking
Accounts
CDs

Deposits

Equity Funding

Bank
Equity

Loans

Equity

Real Money Accounts*

Bank Equity

Short- to Long-Term Cash Investments
Money Market "Portfolios"
Checking
ShortAccount
Term
MMDAs
Savings
CDs

Ultimate Creditors

Households, Businesses, Governments, and the Rest of the World (RoW)

Long-Term Investments
Equity Portfolios

Equity Funding

Traditional Banks' Lending Process

Households, Businesses, Governments

The Traditional
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