3-July-14
By creating to help it to gradually reduce emergency monetary easing new financial instruments, the Fed can better police the shadow banking system, which means that a new U.S. government report.
The central bank has been testing the so-called reverse repurchase plan that will see it lend securities from its diversified portfolio of assets, money market funds. This makes the Fed drain money from the financial system and better control of short-term interest rates.
This also means that larger shadow banking market key role played by the central bank, it can use it to better regulation of this opaque area financial system.
From the Financial Research, part of the U.S. Treasury Department's office report, indicating that the Fed may take advantage of the market, in order to better control the non-bank financial intermediaries, prevent market booms and busts.
In particular, it says, the Fed can set the minimum haircut - Charges Trading - its RRPs, which will impose similar banks to help implement the monetary policy of the reserve requirement move. Increased or decreased hair will be like in the repo market could affect the behavior of money market funds a shot.
"The minimum requirements may be the hairstyle of the shadow of money backing the claim equivalent minimum capital requirements, and may give the Federal Reserve to control the market, macro-prudential credit cycle - it does not have a controlling financial crisis," Zoltan Pozar, a senior adviser at the OFR in the paper said.
According to shadow banking, which is defined by short-term market, the capital market business of paper currency, the size of the sector has grown from $ 8TN at the peak in 2008 dropped to $ 5TN at the end of last year.
Mr. Pozar wrote something about the first study in shadow banking, but his definition of the market than many others use a fairly narrow. Financial Stability Board estimates that the shadow banking system, which is defined as non-bank loans, since the financial crisis, to 71tn assets increased by 21%.
The OFR report, shadow banking in 2008 before growth is likely to be due to the large global imbalances risk aversion led to cash management to seek the financial system for the groove created by the currency asset class.
Chief among them is the big dealers, banks, see them in exchange for loans, including short-term loans money market funds, insurance companies and mutual funds pawn their assets provided by the repo market transactions.
After the repo market has become a zero-based financial crisis significantly reduced the loan financing to large banks.
"Explain the phenomenon of the shadow banking entities as a way of economic imbalances, such as excessive savings, potentially slowing growth and relative wages reflect the financial economy in GDP rising share of corporate profits," Mr. Pozar said.
According to the OFR report, shadow banking activities from contraction, because governments around the world have been sold short-term bonds, effectively crowding dealers, banks, stepped in front of a lot of money to create crisis-like short-term securities.
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