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Financial stability policies for shadow banking

This paper explores financial stability policies for the shadow banking system. I tie policy options to economic mechanisms for shadow banking that have been documented in the literature. I then illustrate the role of shadow bank policies using three examples: agency mortgage real estate investment trusts, leveraged lending, and captive reinsurance affiliates. For each example, the economic mechanisms are explained, the potential risks emanating from the activities are described, and policy options to mitigate such risks are listed. The overarching theme of the analysis is that any policy prescription for the shadow banking system is highly specific to the particular activity.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 664.

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Length: 37 pages
Date of creation: 01 Feb 2014
Date of revision:
Handle: RePEc:fip:fednsr:664
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  1. Gary Gorton & Andrew Metrick, 2010. "Securitized Banking and the Run on Repo," NBER Chapters, in: Market Institutions and Financial Market Risk National Bureau of Economic Research, Inc.
  2. Martin, Antoine & Skeie, David & Thadden, Ernst-Ludwig von, 2013. "Repo Runs," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 448, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Martin, A. & Skeie, D. & von Thadden, E.L., 2010. "Repo Runs," Discussion Paper 2010-44S, Tilburg University, Center for Economic Research.
    • Antoine Martin & David Skeie & Ernst-Ludig von Thadden, 2011. "Repo Runs," FMG Discussion Papers dp687, Financial Markets Group.
    • Antoine Martin & David Skeie & Ernst-Ludwig von Thadden, 2010. "Repo runs," Staff Reports 444, Federal Reserve Bank of New York.
  3. Patrick E. McCabe & Marco Cipriani & Michael Holscher & Antoine Martin, 2012. "The minimum balance at risk: a proposal to mitigate the systemic risks posed by money market funds," Staff Reports 564, Federal Reserve Bank of New York.
  4. Nicola Gennaioli, 2012. "A Model of Shadow Banking," 2012 Meeting Papers 89, Society for Economic Dynamics.
  5. Gary Gorton, 2009. "The Subprime Panic," European Financial Management, European Financial Management Association, vol. 15(1), pages 10-46.
  6. Tobias Adrian & Brian Begalle & Adam Copeland & Antoine Martin, 2013. "Repo and Securities Lending," NBER Chapters, in: Risk Topography: Systemic Risk and Macro Modeling, pages 131-148 National Bureau of Economic Research, Inc.
  7. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 307-362, February.
  8. Tobias Adrian & Adam B. Ashcraft & Nicola Cetorelli, 2013. "Shadow bank monitoring," Staff Reports 638, Federal Reserve Bank of New York.
  9. Mark R. Stone & E. P. Davis, 2004. "Corporate Financial Structure and Financial Stability," IMF Working Papers 04/124, International Monetary Fund.
  10. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
  11. Jeremy C. Stein, 2012. "Monetary Policy as Financial Stability Regulation," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 57-95.
  12. Tobias Adrian & Adam B. Ashcraft, 2012. "Shadow banking: a review of the literature," Staff Reports 580, Federal Reserve Bank of New York.
  13. Mathis, Jérôme & McAndrews, James & Rochet, Jean-Charles, 2009. "Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 657-674, July.
  14. Robin Greenwood & Samuel Hanson & Jeremy C. Stein, 2008. "A Gap-Filling Theory of Corporate Debt Maturity Choice," NBER Working Papers 14087, National Bureau of Economic Research, Inc.
  15. Joshua Gallin, 2013. "Shadow Banking and the Funding of the Nonfinancial Sector," NBER Chapters, in: Measuring Wealth and Financial Intermediation and Their Links to the Real Economy, pages 89-123 National Bureau of Economic Research, Inc.
  16. Tyler Wiggers & Adam B. Ashcraft, 2012. "Defaults and losses on commercial real estate bonds during the Great Depression era," Staff Reports 544, Federal Reserve Bank of New York.
  17. Acharya, Viral V & Schnabl, Philipp & Suarez, Gustavo, 2012. "Securitization Without Risk Transfer," CEPR Discussion Papers 8769, C.E.P.R. Discussion Papers.
  18. Adam Copeland & Antoine Martin & Michael Walker, 2014. "Repo Runs: Evidence from the Tri-Party Repo Market," Journal of Finance, American Finance Association, vol. 69(6), pages 2343-2380, December.
  19. Joshua Coval & Jakub Jurek & Erik Stafford, 2009. "The Economics of Structured Finance," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 3-25, Winter.
  20. Joshua Gallin, 2013. "Shadow banking and the funding of the nonfinancial sector," Finance and Economics Discussion Series 2013-50, Board of Governors of the Federal Reserve System (U.S.).
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