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Puts in the Shadow

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  • Manmohan Singh

Abstract

In the aftermath of the Lehman crisis, payouts (i.e., taxpayer bailouts) in various forms were provided by governments to a variety of financial institutions and markets that were outside the regulatory perimeter - the "shadow" banking system. Although recent regulatory proposals attempt to reduce these "puts", we provide examples from non-banking activities within a bank, money market funds, Triparty repo, OTC derivatives market, collateral with central banks, and issuance of floating rate notes etc., that these risks remain. We suggest that a regulatory environment where puts are not ambiguous will likely lower the cost of bail-outs after a crisis.

Suggested Citation

  • Manmohan Singh, 2012. "Puts in the Shadow," IMF Working Papers 12/229, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/229
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    References listed on IDEAS

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    1. Duffee, Gregory R, 1996. " Idiosyncratic Variation of Treasury Bill Yields," Journal of Finance, American Finance Association, vol. 51(2), pages 527-551, June.
    2. 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," Finance and Economics Discussion Series 2012-47, Board of Governors of the Federal Reserve System (U.S.).
    3. Adam Copeland & Antoine Martin & Michael Walker, 2010. "The tri-party repo market before the 2010 reforms," Staff Reports 477, Federal Reserve Bank of New York.
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