Download The Shadow Banking System

The Shadow Banking System
`
Conceptualized, designed and created by Zoltan Pozsar
The Federal Reserve Bank of New York, November, 2009
Equity
Equity
Discount Window
Loan
Collateral
`
Agency MBS Purchases
Agency Debt Purchases
Agency
Debt
Reserves
Agency
MBS
Reserves
Implicit
Insurance
TBA
Market
Liability Insurance
(Federal Government)
Step (4): ABS Warehousing
Step (5): ABS CDO Issuance
Agency
PassThrough
Loans*
Agency
MBS
A1
AAA
AA-BBB
Equity
*Conforming SBA loans
Commercial Bank*
Dollar
Loans
Deposits
ABCP
Repo
Securities
LTD
Equity
*FHC affiliate
Subprime, RMBS, CMBS
A1
AAA
Loans
AA-BBB
Equity
Single-Seller Conduit
Loans
ABCP
Multi-Seller Conduit*
(Warehouse and Term)
1st Lien
Loans
Consumers
Loans
Equity
*FHC affiliate
AA-BBB
Repos
Haircuts
O/C
2nd Lien
Finance Company*
CP
ABCP
BDP
Loans
MTNs
Trading Books
Loans
Structuring
and
Syndication
ABCP
O/C
*FHC affiliated
Single-Seller Conduit
Broker-Dealer*
High-Yield CLOs
(LBO Loans)
A1
AAA
Loans
AA-BBB
Equity
Repo Conduits
Reverse
Repos*
ABCP
O/C
*FHC affiliate
Consumer ABS
(Credit Card ABS)
A1
AAA
Loans
AA-BBB
Equity
ABCP
O/C
Hybrid Conduits
AA-BBB
High-Grade CDOs
Supers
AAA
AA-BBB
Equity
AA-A
Mezzanine CDOs
Supers
AAA
BBB
AA-BBB
Equity
SIV, SIV-Lite
AAA
CP
AA-BBB
LTD
MTNs
Supers
CNs*
*Capital Notes
AAA
ABCP
AA-BBB
O/C
Liquidity Puts*
ShortTerm
Munis
*ARSs, TOBs, VRDOs
Loans
Bonds
Multi-Seller Conduit*
(Warehouse and Term)
Businesses
CRE
Loans
CRE
Loans
Equity
Hybrid Conduits
(ABS Warehouse Conduits)
ABCP
AA-BBB
O/C
*European bank affiliated
Private Equity
Portfolio Companies
Off-Balance Sheet
O/C
[…]
Mezz
ABS
Mezz
CDO
Euro
Deposits
Equity
Europe an Banks
Arbitrage Conduit
AAA
LBO
Loans
Firms
*FHC affiliate
ABCP
ABCP
AA-BBB
O/C
Off-Balance Sheet
Nonfinancial Businesses
Assets
SIV
AAA
CP
AA-BBB
LTD
MTNs
Supers
CNs*
*Capital Notes
C&I
Loans
Investments
PBGC
MMMF
Insurance
Insurance
Premia
Regulated Money Market
Intermediaries
[…]
Mezz
ABS
Mezz
CDO
Euro
Deposits
Unregulated Money Market
Intermediaries
Liquidity Puts
ARSs
TOBs
or
VRDOs
Munis
ABS
A1 (AAA) ABS Tranches
Loans
A1
CP
2a-7 MMMFs
A1
CP
$1 NAV
ABCP
Shares
BDP
RRs
Other*
*TOBs and VRDOs
Offshore (non-2a-7) MMMFs
A1
CP
$1 NAV
ABCP
Shares
BDP
RRs
Other*
*TOBs and VRDOs
ABCP
Loans
ABCP
ABS
BDPs
Loans
Cash "Plus" Funds
A1
CP
$1 NAV
ABCP
Shares
BDP
RRs
Other*
*ARS, MMMFs, as well as
MTNs and term ABS
Enhanced Cash Funds
A1
CP
$1 NAV
ABCP
Shares
BDP
RRs
Other*
*ARS, MMMFs, as well as
MTNs and term ABS
Ultra-Short Bond Funds
A1
CP
$1 NAV
ABCP
Shares
BDP
RRs
Other*
*ARS, MMMFs, as well as
MTNs and term ABS
ABS
Collateral
Brokered
Deposits
Equity
*Broker-dealer affiliate
Standalone Finance Company
CP
MTNs
Equity
LTD
Equity
Loans
ABCP
O/C
Multi-Seller Conduit*
("Rent-a-Conduit")
Credit "References"
Debt
Insurance
Liquidity Puts*
LongTerm
Munis
ShortTerm
Munis
AAA
Repos
O/C
*Independent conduit
Industrial Loan Company*
Loans
Equity
*Finance company affiliate
Credit
Insurance
MTNs
CNs*
*Capital Notes
Equity
*Unaffiliated with originators!
REITs
[…]
[…]
Credit Insurance
(Monolines)
Credit Insurance
Monoline Insurers*
Diversified Insurance Co.
Credit
Insurance
Premia
CP
LTD
Middle-Market CLOs
(Loans to SMEs)
A1
AAA
Loans
AA-BBB
Equity
Brokered
Deposits
Premia
LPFCs
AAA
AA-BBB
Premia
Credit
Insurance
Federal Responses
(Shadow Bank Backstops)
CPFF
TALF
CP
ABCP
Reserves
AAA
10/7/2008
The "Synthetic" Shadow Banking System
Counterparty Hedges
Warehouse Hedges
Reserves
TSLF/Maiden Lane LLC
Maiden Lane III LLC
Warehoused
ABS
CDS
on
CDOs
Reserves
Reserves
11/25/2008
3/11/08 and 3/24/2008, respectively
10/11/2008
Counterparty Hedges
Warehouse Hedges
Warehouse and
Counterparty Hedges
Nonfinancial Corporates
"Equity"
Savings:
Excess
Cash
"Equity"
AAA
(A2-A3)
Loans
Agency
Debt
ABS
*Medium-term debt
Long-Term Instruments (LTD)
Long-Term Debt
Private
LTD
Agency
ABS
LTD
A4 and AA-BBB ABS Tranches
AAA
(A4)
Loans
AA-BBB
RoW
(Sovereign Wealth Funds)
Savings:
"Equity"
Export
Revenue
FX
Reserves
Cash
Collateral
Securities
Lent
*Done by real money accounts
on a principal basis.
Structure
d Credit
Bonds*
*Issued to central banks
in exchange for investibe FX
Securities Lending*
Long-Term Savings
Fixed Income Portfolios*
Debt
Term
Savings
CNs
*Bank, Shadow Bank
and Corporate Debt
Equity Portfolios*
Public
Equity
Term
Savings
*Mutual Funds, ETFs, Separate Accounts
*Bank and Corporate Debt
Pension Funds, Insurance Companies*
Cash
MTNs
Pension
LTD
Liabilities
Equity
CDOs
HG
ABS
Mezz
ABS
Securities
Lent
Asset Managers*
Cash
MTNs
Client
LTD
Funds
Equity
Loans
Local
Currency
Securities Lending*
Cash
Collateral
*Done by custodian banks
on an agent basis.
Principal Securities Lending
Cash Reinvestment Accounts
A1
CP
Cash
ABCP
Collateral
BDP
RRs
Other*
*MMMFs, MTNs, term ABS and
TOBs and VRDOs
Agency Debt*
Loans
Savings:
FX
Reserves
Agent Securities Lending
Cash Reinvestment Accounts
A1
CP
Cash
ABCP
Collateral
BDP
RRs
Other*
*MMMFs, MTNs, term ABS and
TOBs and VRDOs
Private
MTNs
A2 & A3 (AAA) ABS Tranches
Structure
d Credit
Super
Senior
Super
Senior
*Public and Private Pension Funds,
and Life and P&C Insurance Companies
Structured Credit Portfolios*
Debt
Term
Tranches
Savings
Equity
Tranches
*Term ABS and CDO
debt and equity tranches
TAF
ABS
Public Equity
FX Swaps
Reserves
12/12/2007
$
Loans
ABS
Equity
Structured Credit Equity
ABS
Loans
and
CDO
ABS
Equity
Alternative Asset Managers*
Cash
MTNs
Client
LTD
Funds
Equity
*Hedge Funds and Private Equity
(only credit exposures)
TSLF/PDCF
Tri-Party
Collateral
FX
12/12/2007
Reserves
3/11/08 and 3/16/08, respectively
AMLF
ABCP
MMIFF
Reserves
9/19/2008
Nonrepo
MMS
Reserves
10/21/2008
Maiden Lane II LLC
Subprime
ABS
Reserves
11/10/2008
Synthetic Credit Liabilities
Bond(s)
Households, Businesses, Governments
Loans
Assets
Bonds
Equity
CDS
Single-Name and Index
Sovereign CDS
Bond(s)
CDPCs
Unfunded
Protection
Funded
Protectio
n
Short-Term Synthetic Liabilities
CPDOs*
[…]
Protection Sold
Equity
CDS
Broker-Dealers*
Counterparty Hedges
Warehouse Hedges
Protection
Bought
Protection Sold
AAA
Equity
*Referencing corporate loan indices, etc.
Counterparty Hedges
Warehouse Hedges
Warehouse Hedges
Credit Hedge Funds
Structured Credit and Loan
CDS Indices
Loan(s)
CDS
Unfunded
Protection
Funded
Protection
*Market Makers
Protection Sold
Equity
Source: Shadow Banking (Pozsar, Adrian, Ashcraft, Boesky (2010))
Funded Synthetic CDOs*
(Credit-Linked Notes)
AAA
AAA
AA-BBB
Equity
Referencing ABS and single-name CDS
indices, etc.
Treasurys
Unfunded Synthetic CDOs*
[…]
AAA
AA-BBB
Equity
*Referencing single-name CDS indices, etc.
Private Risk Repositories
Single-Name and Index
Corporate CDS
The "Synthetic" Shadow Banking System
(Derivatives-Based Risk Repositories)
Ultimate Borrowers
Loans,
ABS
and
CDOs
Funded
Protection
Long-Term Synthetic Liabilities
Loans,
ABS
and
CDOs
Funded
Protection
Hedgers*
Portfolio Protection*
Insured
Assets
Broker-dealer CVA desks, ABS pipeline hedges,
negative basis traders, real money accounts, etc.
Hedges
Synthetic Exposures*
Unfunded
Protection
*Inability to meet
unfunded liabilities, etc.
"Naked"
Positions
Credit
Bets
Term
Savings
*Speculative Motives
Proprietary trading desks, credit hedge funds, etc.
Ultimate Creditors
Term
Savings
*Hedging Motives
Speculators*
Counterparty Risks*
Loans,
ABS
and
CDOs
Reserves
LSAPs
RoW
(Foreign Central Banks)
ABS
TSLF
TSLF
PDCF
CPFF
TALF
AMLF
MMIFF
ML, LLC
ML II, LLC
Credit Insurance
Equity
*Unaffiliated with originators!
Equity
*Unaffiliated with originators!
"Equity"
ML III, LLC
Wholesale Funding
(Medium-Term Funding)
*Broker-dealer affiliate
Credit Hedge Fund
AA-BBB
Other ABS
(Floorplan, Equipment, Fleets)
A1
AAA
Loans
AA-BBB
Equity
ABCP
Mortgage Insurers*
TLGP
Seniors
Haircuts
Credit Insurance
(Mortgage Insurers)
MTNs
Mezzanine CDOs
Supers
AAA
AA-BBB
Equity
BBB
Consumer ABS
(Card, Auto, Student Loan)
A1
AAA
Loans
AA-BBB
Equity
Single-Seller Conduit
Loans
Captive Finance Company
CP
ABCP
BDP
Loans
`
MTN
Repos
Haircuts
Asset Manager,
Prime Broker
Trading Book
Super
Seniors
Repos
Super
*ARSs, TOBs, VRDOs
ABCP
Loans
AA-BBB
CMBS and High-Yield CLOs
(LBO Loans)
A1
AAA
Loans
AA-BBB
Equity
Savings:
Excess
Cash
Sweep Accounts
A1
CP
$1 NAV
ABCP
Shares
BDP
RRs
Other*
*ARS, MMMFs
Cash lending
for
securities collateral
Wholesale Funding
(Term Debt Funding)
Brokered
Deposits
Loans
Brokerage
Clients'
Cash
Balances
*Broker-dealer affiliate
Households and Nonprofits
FX Swaps
Provision of Risk Capital
Muni
Bonds
Tax
Revenues
*DBD affiliate
Broker Sweep Accounts
AA-BBB
ShortTerm
Savings
$1 NAV
Shares
LGIPs
A1
CP
$1 NAV
ABCP
Shares
BDP
RRs
Other*
*MMMFs
Federal, State
and Local Governments
MTNs
DBDs' Credit Intermediation Process
Industrial Loan Company*
Local Governments
Trading Books
High-Grade CDOs
Supers
AAA
AA-A
AA-BBB
Equity
Direct
Investme
Federal Reserve
DW
TAF
Reverse
Repos
The "External" Shadow Banking System
(Independent Specialists: Originate-to-Fund Model | DBDs: Originate-to-Distribute Model)
Structuring
and
Syndication
Subprime ABS
(2nd lien, subprime, HELOCs)
A1
AAA
Loans
AA-BBB
Equity
Short-Term Savings
Money Market Portfolios
Tri-Party Repo System
Loans
Independent Specialists' Credit Intermediation Process
State
Bonds
Tax
Revenues
Broker-Dealer*
Bank Treasurers
A1
CP
$1 NAV
ABCP
Shares
BDP
RRs
Other*
*ARS, MMMFs
Savings:
Excess
Cash
*BoNY and JP Morgan Chase
(Tail Risk Absorption)
Bonds
ABCP
O/C
Repos
$1 NAV
Shares
RRs
Other*
*ARS, MMMFs
Equity
Private Risk Repositories
Tax
Revenues
Loans
AAA
Ultimate Creditors
Corporate Treasurers
A1
BDPs
Tri-Party Clearing Banks*
Private Credit Transformation
Equity
*Broker-dealer affiliate
State Governments
Credit Hedge Fund*
Off-Balance Sheet
Governments
RMBS
(1st lien, private label)
A1
AAA
Loans
AA-BBB
Equity
Single-Seller Conduit
Off-Balance Sheet
Finance Company*
CP
ABCP
BDP
Loans
MTNs
Treasury
Bonds
Direct Money Market Investors
CP
ABCP
Medium-Term Instruments
Federal Government
Tax
Revenues
Implicit
Insurance
9/18/2008
*Funded by UST's $50 billion
Exchange Stabilization Fund
Agency
Bills
ABS
Loans
Europe an Banks
Off-Balance Sheet
Businesses
Loans
CP
Asset Manager*
Arbitrage Conduit
LongTerm
Munis
ABCP
O/C
Federal Government
Off-Balance Sheet
FHLBs
(Retained Portfolios)
Agency
Discount
MBS
Notes
Private
Agency
ABS
Debt
SBA ABS
Goods
&
Services
Term
Savings
Bank
Equity
Insurance
Guarantees
Agency Discount Notes
Off-Balance Sheet
A1
AAA
AA-BBB
Equity
*Conforming student loans
Loans*
Loans*
Equity
Long-Term Investments
Step (7): Wholesale Funding
(Shadow Bank "Depositors")
Short-Term Debt Instruments
CMO
Tranches
Fannie and Freddie
(Retained Portfolios)
Agency
Discount
MBS
Notes
Private
Agency
ABS
Debt
FFELP ABS
Agency
Debt
Equity
Home
Client
Funds
On-Balance Sheet
ABS Intermediation
Off-Balance Sheet
LBs
Discount
Notes
Temporary
MMMF Guarantee
No
Explicit
Fees
Catalogue:,
Shadow Bank Liabilities
CMOs
(Time-Tranched Agency MBS)
Off-Balance Sheet
FH
Loans
Loans
Bank
Equity
Liability Insurance
(EU Government)
Step (6): ABS "Intermediation"
*Conforming mortgages
Assets
Households, Businesses
and the Rest of the World
Credit Hedges
Credit Insurance
(GSEs, DoE, SBA)
Step (3): ABS Issuance
Wholesale Funding
(Short-Term Funding)
Liability Insurance
(Federal Government)
Step (2): Loan Warehousing
Wholesale Funding
(Overnight Funding)
Deposit Insurance
(FDIC)
Step (1): Loan Origination
Off-Balance Sheet
ABS Intermediation
Equity
Ultimate Creditors
Equity Portfolios
Public Risk Repositories
(Tail Risk Absorption)
No
Explicit
Fees
Implicit
Insurance
Public Risk Repositories
Implicit
Insurance
No
Explicit
Fees
Implicit
Insurance
The GSEs' Credit Intermediation Process
No
Explicit
Fees
Agency MBS
1st Lien
Bank
Equity
Money Market "Portfolios"
Checking
ShortAccount
Term
MMDAs
Savings
CDs
*Asset Managers, Insurance Companies and
Pension Funds
The Government-Sponsored Shadow Banking System
(Public Originate-to-Distribute Model)
No
Explicit
Fees
Fannie and Freddie*
Home
Real Money Accounts*
Bank Equity
Public Credit Transformation
(Tail Risk Absorption)
European Sovereign and
Quasi-Sovereign States
Federal Government
Federal Government
Deposit
Insurance
Ultimate Borrowers
Subprime Homeowners
Equity Funding
Loans
Short- to Long-Term Cash
Reserves
Equity
Households
Equity
11/25/2008
FHCs' Credit Intermediation Process
Federal Responses
(Shadow Bank Backstops)
Agency
Debt
GSEs, DoE, SBA
Insurance
Premia
"Prime" Homeowners
Depositors
Deposits
Deposit Insurance
(FDIC)
FDIC
The "Cash" Shadow Banking System
CDs
Agency Debt Purchases
Reserves
11/25/2008
11/25/2008
Deposits
Checking
Accounts
Equity Funding
Dollar
Deposits
Loans
Loans
The "Internal" Shadow Banking System
(Private Originate-to-Distribute Model)
Bonds
Borrowers
Assets
European Banks' Shadow Banking Activites
Loans
Assets
The Traditional Banking System
("Originate-to-Hold-to-Maturity-and-Fund-with-Deposits")
Commercial Banks
Households, Businesses, Governments
Short-Term Funding
Loans
Debt Funding
(Short and Long-Term Deposits
The Traditional Banking System
Ultimate Borrowers
Households, Businesses, Governments
and the Rest of the World (RoW)
OMO
Collateral
Equity