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Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System

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  • Zoltan Pozsar

Abstract

Through the profiling of institutional cash pools, this paper explains the rise of the "shadow" banking system from a demand-side perspective. Explaining the rise of shadow banking from this angle paints a very different picture than the supply-side angle that views it as a story of banks' funding preferences and arbitrage. Institutional cash pools prefer to avoid too much unsecured exposure to banks even through insured deposits. Short-term government guaranteed securities are the next best choice, but their supply is insufficient. The shadow banking system arose to fill this vacuum. One way to manage the size of the shadow banking system is by adopting the supply management of Treasury bills as a macroprudential tool.

Suggested Citation

  • Zoltan Pozsar, 2011. "Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System," IMF Working Papers 11/190, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/190
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    References listed on IDEAS

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    1. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2007. "The Demand for Treasury Debt," NBER Working Papers 12881, National Bureau of Economic Research, Inc.
    2. Perry Mehrling, 2010. "The New Lombard Street: How the Fed Became the Dealer of Last Resort," Economics Books, Princeton University Press, edition 1, number 9298.
    3. Jeremy C. Stein, 2011. "Monetary Policy as Financial-Stability Regulation," NBER Working Papers 16883, National Bureau of Economic Research, Inc.
    4. Ricardo J. Caballero, 2010. "The "Other" Imbalance and the Financial Crisis," NBER Working Papers 15636, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Servaas Storm, 2018. "Financialization and Economic Development: A Debate on the Social Efficiency of Modern Finance," Development and Change, International Institute of Social Studies, vol. 49(2), pages 302-329, March.
    2. Rodrigo Pérez Artica & Lisana Martinez & Leandro Brufman, 2016. "A Study of Excess Savings at the Firm Level in Developed Countries. Three Hypotheses about its Causes," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(74), pages 57-104, December.
    3. Baranova, Yuliya & Liu, Zijun & Noss, Joseph, 2016. "The role of collateral in supporting liquidity," Bank of England working papers 609, Bank of England.
    4. Gary Gorton & Andrew Metrick, 2012. "Entérese rápidamente de la crisis financiera: guía de lectura para un fin de semana," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 14(26), pages 15-46, January-J.
    5. Derek Anderson & Benjamin L Hunt & Stephen Snudden, 2013. "Fiscal Consolidation in the Euro Area; How Much Can Structural Reforms Ease the Pain?," IMF Working Papers 13/211, International Monetary Fund.
    6. Martin Hodula, 2018. "Off the Radar: Exploring the Rise of Shadow Banking in the EU," Working Papers 2018/16, Czech National Bank.
    7. Rodrigo Pérez Artica & Leandro Brufman & Lisana Belén Martinez, 2017. "Delving into the Secular Stagnation Hypothesis: A Firm-Level Analysis of the Private Sector’s Excess Savings in Advanced Economies," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(1), pages 77-106, March.
    8. Michel Aglietta & Jean-Charles Hourcade & Carlo Jaeger & Baptiste Fabert, 2015. "Financing transition in an adverse context: climate finance beyond carbon finance," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 15(4), pages 403-420, November.
    9. Joachim Keller, 2012. "The shadow banking system : economic characteristics and regulatory issues," Financial Stability Review, National Bank of Belgium, vol. 10(1), pages 121-134, June.
    10. Martin Hodula, 2019. "Monetary Policy and Shadow Banking: Trapped between a Rock and a Hard Place," Working Papers 2019/5, Czech National Bank.
    11. Oddný Helgadóttir, 2016. "Banking upside down: the implicit politics of shadow banking expertise," Review of International Political Economy, Taylor & Francis Journals, vol. 23(6), pages 915-940, November.
    12. Zoltan Pozsar, 2014. "Shadow Banking: The Money View," Working Papers 14-04, Office of Financial Research, US Department of the Treasury.
    13. Steffen Murau, 2017. "Shadow money and the public money supply: the impact of the 2007–2009 financial crisis on the monetary system," Review of International Political Economy, Taylor & Francis Journals, vol. 24(5), pages 802-838, September.
    14. Daniela Gabor, 2018. "Goodbye (Chinese) Shadow Banking, Hello Market†based Finance," Development and Change, International Institute of Social Studies, vol. 49(2), pages 394-419, March.
    15. Swati Ghosh & Ines Gonzalez del Mazo & ?nci Ötker-Robe, 2012. "Chasing the Shadows : How Significant is Shadow Banking in Emerging Markets?," World Bank Other Operational Studies 17088, The World Bank.
    16. Claessens, Stijn, 2017. "Regulation and structural change in financial systems," CEPR Discussion Papers 11822, C.E.P.R. Discussion Papers.
    17. Yeva Nersisyan, 2015. "The Repeal of the Glass-Steagall Act and the Federal Reserve's Extraordinary Intervention during the Global Financial Crisis," Economics Working Paper Archive wp_829, Levy Economics Institute.
    18. Unger, Robert, 2016. "Traditional banks, shadow banks and the US credit boom: Credit origination versus financing," Discussion Papers 11/2016, Deutsche Bundesbank.
    19. Tao Sun, 2015. "The Impact of Global Liquidity on Financial Landscapes and Risks in the ASEAN-5 Countries," IMF Working Papers 15/211, International Monetary Fund.

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