In October 2014, the International Monetary Fund (IMF) published its Global Financial Stability Report (“the Report”) entitled “Risk Taking, Liquidity, and Shadow Banking: Curbing Excess while Promoting Growth”. The report asserts that global economic recovery is dependent upon “accommodative” monetary policy in advanced economies by way of shadow banking. At the same time, the Report cautions that prolonged accommodation may also encourage excessive financial risk.
The October 2014 Global Financial Stability Report (GFSR) finds that six years after the start of the crisis, the global economic recovery continues to rely heavily on accommodative monetary policies in advanced economies. Monetary accommodation remains critical in supporting the economy by encouraging economic risk taking in the form of increased real spending by households and greater willingness to invest and hire by businesses. However, prolonged monetary ease may also encourage excessive financial risk taking.
Interesting news and articles from the last week that we haven’t gotten a chance to talk about elsewhere, including MiFID and liquidity, a suggestion that Moody’s has preferenced ratings of bonds held by its corporate owners, and securities lending CCPs. Read on.
Sheila Blair, former head of the FDIC and now head of the private, nonpartisan Systemic Risk Council wrote an article in the July 24th Wall Street Journal “The Federal Reserve’s Risky Reverse Repurchase Scheme”. She has joined a group of regulators and former regulators who have some hesitation about the Fed’s RRP program.
We’ve seen several recent news articles and commentary on Shadow Banking, from The Economist’s special report to news on China’s CITIC. Below are the most interesting articles we’ve seen lately.
An article published in December 2013 by the Centre for Economic Policy Research “The roots of shadow banking” by Enrico Perotti of the University of Amsterdam, ECB and CEPR grabbed our attention. The author blames repo for the bad lending in the mortgage markets during the financial crisis.
IMN held its 20th beneficial owners in securities lending last week in Austin, TX. Finadium chaired the conference and was represented in both individual talks and a panel. Here’s a synopsis of what we heard and what we said.
Reading the news this morning we were struck by how far Shadow Banking has spread into the popular financial lexicon. We point out five recent observations from the spot-on to the dubious.
Following the initial reactions of regulators to protect market stability and dial down risk, we are seeing several points suggesting that the tide is turning: maintaining market liquidity is being looked at more kindly than in the last few years. In particular, we note European suggestions that securitization is really alright and that even Shadow Banking might not be so bad after all.