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Financial intermediation and the post-crisis financial system

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  • Hyun Song Shin

Abstract

Securitization was meant to disperse credit risk to those who were better able to bear it. In practice, securitization appears to have concentrated the risks in the financial intermediary sector itself. This paper outlines an accounting framework for the financial system for assessing the impact of securitization on financial stability. If securitization leads to the lengthening of intermediation chains, then risks becomes concentrated in the intermediary sector with damaging consequences for financial stability. Covered bonds are one form of securitization that do not fall foul of this principle. I discuss the role of countercyclial capital requirements and the Spanish-style statistical provisioning in mitigating the harmful effects of lengthening intermediation chains.

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  • Hyun Song Shin, 2010. "Financial intermediation and the post-crisis financial system," BIS Working Papers 304, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:304
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    References listed on IDEAS

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    1. Frank Packer & Ryan Stever & Christian Upper, 2007. "The covered bond market," BIS Quarterly Review, Bank for International Settlements, September.
    2. Martin Hellwig, 1995. "Systemic Aspects of Risk Management in Banking and Finance," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(IV), pages 723-737, December.
    3. Santiago Fernández de Lis & Jorge Martínez Pagés & Jesús Saurina, 2001. "Credit growth, problem loans and credit risk provisioning in Spain," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 331-353, Bank for International Settlements.
    4. Tobias Adrian & Hyun Song Shin, 2009. "Money, Liquidity, and Monetary Policy," American Economic Review, American Economic Association, vol. 99(2), pages 600-605, May.
    5. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
    6. Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
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    Keywords

    leverage; financial intermediation chains; financial stability;
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