Posted

January 23, 2011 01:32:53 AM

Date

2010-03

Author

Hyun Song Shin

Affiliation

Princeton University

Title

Financial intermediation and the post-crisis financial system

Summary /
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.

Keywords

Leverage; financial intermediation chains, financial stability

URL

http://www.bis.org/publ/work304.pdf

Remarks

This is a nice analytical framework using flow-of-funds and balance sheet identities, complemented by excellent commentaries by Donald Kohn of the Fed Res Board and Jose Vinals of the IMF.

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