CHICAGO — U.S. Federal Reserve Chairman Ben Bernanke said on Friday that the shadow banking system still posed a threat to financial stability, and funding markets might still not be able to cope with a major default.
In a wide-ranging speech explaining the Fed’s role in monitoring the health of the banking system, Bernanke also laid out how the central bank was looking at asset markets closely for signs of excessive risk taking.
Over four years ago, in "Chasing the Shadow of Money", Zero Hedge first presented a curious if perverse aspect of the Fed's QE experiment in the context of the modern monetary system: the extraction of "quality" collateral by the Fed's daily purchases of Treasury (and MBS) securities, and it replacement with reserves - a transformation which while boosting asset prices, results in an ongoing deleveraging of shadow liabilities, as well as a persistent slowdown in the velocity of collateral (due to both its incre
By now everyone has heard of securitization: the process whereby banks take risky assets on their books, package, tranche them, and then re-sell them to yield chasing fiduciaries of widows and orphans.
Over two years ago, in March of 2012, when it was taboo to even suggest the Fed may be forced to admit failure once again with its then "final" monetary intervention Operation Twist (following similar failures with QE1 and QE2), we explained clearly "Why The Fed Will Have To Do At Least Another $3.6 Trillion In Quantitative Easing." The premise was simple: while the Fed had succeeded in raising the notional amount of traditional bank liabilities, primarily deposits, through QE
Enrico Perotti, 21 June 2012The ‘shadow banking’ sector is a loose title given to the financial sector that exists outside the regulatory perimeter. This column argues that despite its unpleasant sounding name, and its crucial role in the credit boom that preceded the global crisis, it does have its benefits – something that the regulators should be aware of.Full Article: The roots of shadow banking
By Christos N. Spanos:Just as the European banking sector is scrambling to recapitalize, an old familiar foe is rearing its ugly head again, bringing back memories of the not too distant past. The anaemic lending appetite by banks is once again creating a setting ripe for shadow banking to re-emerge. Most will argue that it never went away, it just became smaller and stealthier.