`
The Federal Reserve Bank of New York, November, 2009
Short-Term Funding Short- to Lon g-Term C ash
Households, Businesses, Governments
Equity Funding Long-Term Investments
`
Equity
Short-Term Debt Instruments
Regulated Money Market Unregulated Money Market
Agency MBS Agency Discount Notes Intermediaries Intermediaries
*Conforming mortgages
Liquidity Puts A1 *ARS, MMMFs
A1 CP
AAA ABCP
AA-BBB BDP
Equity RRs
*Conforming student loans 2a-7 MMMFs Other*
A1 *ARS, MMMFs, as well as A1
A1 (AAA) ABS Tranches CP MTNs and t erm ABS CP
A1 ABCP ABCP
AAA BDP BDP
AA-BBB RRs RRs Short-Term Savings
Equity Other* Other*
*Conforming SBA loa ns *TOBs and VRDOs A1 *ARS, MMMFs Money Market Portfolios
CP
ABCP
BDP
RRs
Other*
A1
AAA Offshore (non-2a-7) MMMFs *ARS, MMMFs, as well as A1
AA-BBB A1 MTNs and term ABS CP
Equity Repo Equity Supers CNs* ABCP BDP
LTD Haircuts BDP RRs
Households Equity O/C High-Yield CLOs RRs Ultra-Short Bond Funds Other* Households and Nonprofits
(LBO Loans) Other* A1 *MMMFs
A1 *TOBs and VRDOs CP
AAA ABCP
AA-BBB BDP
Equity O/C O/C O/C Other*
CP
*FHC affili ate Consumer ABS *ARS, MMMFs, as well as A1
ABCP (Credit Card ABS) MTNs and t erm ABS CP
BDP A1 ABCP
AAA BDP
AA-BBB RRs
Equity O/C Equity Other* Nonfinancial Corporates
O/C *ARS, MMMFs
an Banks
DW
LTD MTNs Tri-Party Repo System TSLF
CNs* Feder al, State TSLF
Nonfinancial Businesses Equity Tri-Party Clearing Banks* and Local Governments PDCF
CPFF
TALF
AMLF
MMIFF
ML, LLC
Equity O/C O/C an Banks
ML II, LLC
*BoNY and JP Morgan Cha se
ML III, LLC
LSAPs
RoW
O/C Equity (Foreign Central Banks) Equity
RMBS
(1st lien, private label) MTNs Cash Reinvestment Accounts
CP
A1 A1
ABCP AAA CP
BDP
AA-BBB ABCP
Equity BDP RoW
Governments RRs (Sovereign Wealth Funds)
Equity O/C Subprime ABS Other*
*Done by cust odian banks
(2nd lie n, subprime, HELO Cs) Trading Book *MMMFs, MT Ns, term ABS and on an agent basi s.
A1 TOBs and VRDOs
AAA
AA-BBB
Equity
Haircuts Cash Reinvestment Accounts *Issued to central banks
CMBS and High-Yield CLOs A1 in exchange for investibe FX
(LBO Loans) CP Long-Term Savings
A1 ABCP
AAA BDP F ixed Income Portfolios*
AA-BBB RRs
Equity Equity Other* *Done by real money accounts
*MMMFs, MT Ns, term ABS and on a principa l basis.
TOBs and VRDOs
*Bank, Shadow Bank
and Corporate Debt
Consumer ABS
(Card, Aut o, Student Loa n)
Equity O/C Other ABS
(Floorplan, Equipment, Fleets)
A1
AAA
*Mutual Funds, ETFs, Separate Accounts
AA-BBB
*Bank a nd Corporate Debt
O/C
CP Middle-Market CLOs
ABCP (Loans to SME s)
Equity Equity Equity
*Term ABS and CDO
debt and equity tranches
Public Equity
Structured Credit Equity
Equity
*Hedge Funds and Private Equity
(only credit exposures)
Maiden Lan e LLC
3/11/08 and 3/16/08, respectively
Portfolio Pr otection*
Households, Businesses, Governments
Households, Businesses, Governments Equity and the Rest of the Wor ld (RoW)
Source: Shadow Banking (Pozsar, Adrian, Ashcraft, Boesky (2010))
Step (7): Wholesale Fundi ng
(Shadow Ba nk "Depositors" )
Long-Term Synthetic Liabilities
Broker-dealer CVA desks, ABS pipeline hedges,
Conceptualized, designed and created by Zoltan Pozsar (zoltan.pozsar@ny.frb.org
)
Wholesale Funding
(Term Debt Funding)
*Funded by UST's $50 billion
Step (4):
ABS Warehous ing
The "Synthetic" Shadow Banking System
Proprietary trading desks, credit hedge funds, etc.
Money Market "Portfolios"
The Traditional Banking System
("Originate-to-Hold-to-Maturity-and-Fund-with-Deposits")
unfunded liabilities, etc.
Referencing ABS and single-name CDS
*Referencing single-name CDS indices, etc.
Structured Credit and Loan
negative basis traders, real money accounts, etc.
*Referencing corporate loan indices, etc.
Short-Term Synthetic Liabilities
Synthetic Credit Liabilit ies
Private Risk Repositories
The "Synthetic" Shadow Banking System
(Derivatives-Based Risk Repositories)
Warehouse a nd
Counterparty Hedges
Private Credit Transf ormation
(Tail Risk Absorption)
Provision of Risk Capital
Private Risk Repositories
*Unaffiliated with originators!
Credit Insurance
(Mortgag e Insurers)
Credit
Insurance
(Par Puts)
*Unaffiliated with originators!
*Unaffiliated with originators!
Credit Insurance
(AIG FP)
Credit Insurance
(AIG FP)
*Public and Private Pension Funds,
Pension Funds, Insurance Companies*
Structured Credit Portfolios*
Credit Insurance
(Monolines)
A4 and AA-BBB ABS Tranches
Diversified Insurance Co.
Alternative Asset Managers*
The "External" Shadow Banking System
(DBDs: Originate-to-Distribute Model | Independent Specialists: Originate-to-Fund Model)
A2 & A3 (AAA) ABS Tranches
Long-Term nstruments (LTD)
Independent Specialists' Credit Intermediation Process
Standalone Finance Company
*Finance company affiliate
Wholesale Funding
(Medium-Term Funding)
Brokerage
Clients'
Cash
Balances
Principal Securities Lending
DBDs' Credit Intermediation Process
*European ba nk affiliat ed
Wholesale Funding
(Overni ght Funding)
European Banks' Shadow Banking Activites
Cash lendi ng
for
securities collateral
The "Internal" Shadow Banking System
(Private Originate-to-Distribute Model)
Structuring
and
Syndication
FHCs' Credit Intermediation Process
The Government-Sponsored Shadow Banking System
(Public Originate-to-Distribute Model)
Direct Money Market Investors
Off -Balance Sheet
ABS Intermediatio n
On-Balance Sheet
ABS Intermediatio n
The GSEs' Credit Intermediation Process
(Time-Tranched Agency MBS)
The "Cash" Shadow Banking System
Liability Insurance
(Federal Government)
Credit Insurance
(GSEs, DoE, SBA)
Liability Insurance
(Federal Government)
Liability Insurance
(EU Gov ernment)
Public Risk Repositories
(Tail Risk Absorption)
Public Credit Transformation
(Tail Risk Absorption)
Traditional Banks' Lending Process
Exchange Stabilization Fund
*Asset Ma nagers, Insurance Compa nies and
and the Rest of the World
The Traditional Banking System
Step (1):
Loan Origina tion
Debt Funding
(Short and Long-T erm Deposits
Wholesale Funding
(Short-Term Fund ing)
(ABS Ware house Conduits)
Structuring
and
Syndication
Step (2):
Loan Warehousi ng
Step (5):
ABS CDO Issuance
and Life and P&C Insurance Companies
Catalogue:
,
Shadow Bank Liabilities
Step (6):
ABS "Intermediation"
The Shadow Banking System