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The (Other) Deleveraging

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  • Mr. Manmohan Singh

Abstract

Deleveraging has two components--shrinking of balance sheets due to increased haircuts/shedding of assets, and the reduction in the interconnectedness of the financial system. We focus on the second aspect and show that post-Lehman there has been a significant decline in the interconnectedness in the pledged collateral market between banks and nonbanks. We find that both the collateral and its associated velocity are not rebounding as of end-2011 and still about $4-5 trillion lower than the peak of $10 trillion as of end-2007. This paper updates Singh (2011) and we use this data to compare with the monetary aggregates (largely due to QE efforts in US, Euro area and UK), and discuss the overall financial lubrication that likely impacts the conduct of global monetary policy.

Suggested Citation

  • Mr. Manmohan Singh, 2012. "The (Other) Deleveraging," IMF Working Papers 2012/179, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/179
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    References listed on IDEAS

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    1. Patrick M McGuire & Kostas Tsatsaronis, 2008. "Estimating hedge fund leverage," BIS Working Papers 260, Bank for International Settlements.
    2. Andrei Shleifer & Robert Vishny, 2011. "Fire Sales in Finance and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 29-48, Winter.
    3. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    4. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    5. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    6. Ang, Andrew & Gorovyy, Sergiy & van Inwegen, Gregory B., 2011. "Hedge fund leverage," Journal of Financial Economics, Elsevier, vol. 102(1), pages 102-126, October.
    7. Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2014. "Sizing Up Repo," Journal of Finance, American Finance Association, vol. 69(6), pages 2381-2417, December.
    8. Mr. Manmohan Singh & Mr. Peter Stella, 2012. "Money and Collateral," IMF Working Papers 2012/095, International Monetary Fund.
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    Citations

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    Cited by:

    1. Karkowska, Renata, 2013. "The empirical analysis of dynamic relationship between financial intermediary connections and market return volatility," MPRA Paper 58802, University Library of Munich, Germany.
    2. Luu, Duc Thi & Napoletano, Mauro & Barucca, Paolo & Battiston, Stefano, 2021. "Collateral Unchained: Rehypothecation networks, concentration and systemic effects," Journal of Financial Stability, Elsevier, vol. 52(C).
    3. Eugenio Caverzasi & Daniele Tori, 2018. "The Financial Innovation Hypothesis: Schumpeter, Minsky and the sub-prime mortgage crisis," Working Papers PKWP1815, Post Keynesian Economics Society (PKES).
    4. Thiemann, Matthias & Birk, Marius, 2015. "The regulation of repo markets: Incorporating public interest through a stronger role of civil society," SAFE White Paper Series 25, Leibniz Institute for Financial Research SAFE.
    5. repec:spo:wpmain:info:hdl:2441/2b7q60gmqo82aqr0p34bieidke is not listed on IDEAS
    6. Singh, M., 2013. "OTC derivatives market – regulatory developments and collateral dynamics," Financial Stability Review, Banque de France, issue 17, pages 207-213, April.
    7. Diego Valiante, 2017. "The ‘Visible Hand’ of the ECB’s first quantitative easing," International Economics and Economic Policy, Springer, vol. 14(4), pages 601-624, October.
    8. Brender, Anton & Pisani, Florence & Gagna, Emile, 2015. "Money, Finance and the Real Economy: What went wrong?," CEPS Papers 10290, Centre for European Policy Studies.
    9. Stewart, Robert & Chowdhury, Murshed & Arjoon, Vaalmikki, 2021. "Interdependencies between regulatory capital, credit extension and economic growth," Journal of Economics and Business, Elsevier, vol. 117(C).
    10. Mr. Manmohan Singh & Zohair Alam, 2018. "Leverage—A Broader View," IMF Working Papers 2018/062, International Monetary Fund.
    11. Luiz Awazu Pereira da Silva & Adriana Soares Sales & Wagner Piazza Gaglianone, 2013. "Financial stability in Brazil," Chapters, in: Andreas Dombret & Otto Lucius (ed.), Stability of the Financial System, chapter 4, Edward Elgar Publishing.
    12. Grilli, Ruggero & Giri, Federico & Gallegati, Mauro, 2020. "Collateral rehypothecation, safe asset scarcity, and unconventional monetary policy," Economic Modelling, Elsevier, vol. 91(C), pages 633-645.
    13. von der Becke Susanne & Sornette Didier, 2019. "An Asset-Based Framework of Credit Creation (applied to the Global Financial Crisis)," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 9(2), pages 1-21, July.
    14. Maurizio Trapanese, 2021. "The economics of non-bank financial intermediation: why do we need to fill the regulation gap?," Questioni di Economia e Finanza (Occasional Papers) 625, Bank of Italy, Economic Research and International Relations Area.
    15. repec:hal:spmain:info:hdl:2441/2b7q60gmqo82aqr0p34bieidke is not listed on IDEAS

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