Leverage? What Leverage? A Deep Dive into the U.S. Flow of Funds in Search of Clues to the Global Crisis

Tamim Bayoumi and Ashok Bhatia

No 2012/162, IMF Working Papers from International Monetary Fund

Abstract: This paper questions the view that leverage should have forewarned us of the global financial crisis of 2007-09, pointing to several gearing indicators that were neither useful portents of the onset of the crisis nor of its ferocity. Instead it shows, first, that the use of ill-suited collateral in the secured funding operations of U.S.-based investment banks was the fatal link between the collapse of structured finance and the global malfunction of funding markets that turbocharged the downdraft; and, second, that this insight (and others) can be decrypted from the Flow of Funds Accounts of the United States.

Keywords: WP; security credit; private sector; leveraged securities dealer; bank deposit; credit funding (search for similar items in EconPapers)
Pages: 30
Date: 2012-06-01
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Citations: View citations in EconPapers (7)

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