The (Other) Deleveraging

Manmohan Singh

No 2012/179, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; hedge fund; bank; monetary policy; pledged collateral; velocity of collateral; rehypothecation; deleveraging; hedge funds; securities lending; Taylor rule; client collateral; remains idle; collateral Received; Hong Kong hedge fund; Collateral; Financial statements; Securities; Pension spending; Global; Europe (search for similar items in EconPapers)
Pages: 22
Date: 2012-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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