Posted
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January 23, 2011 01:32:53 AM |
Date
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2010-03 |
Author
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Hyun Song Shin |
Affiliation
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Princeton University |
Title
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Financial intermediation and the post-crisis financial system |
Summary / Abstract
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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.
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Keywords
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Leverage; financial intermediation chains, financial stability |
URL
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http://www.bis.org/publ/work304.pdf
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Remarks
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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. |
See
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