Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System

Through the profiling of institutional cash pools, this paper explains the rise of the “shadow” banking system from a demand‐side perspective. Explaining the rise of shadow banking from this angle paints a very different picture than the supply‐side angle that views it as a story of banks’ funding p...

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Bibliographic Details
Published in:Financial markets, institutions & instruments institutions & instruments, 2013-12, Vol.22 (5), p.283-318
Main Author: Pozsar, Zoltan
Format: Article
Language:English
Subjects:
Arbitrage
Banking industry
Banking system
Capital formation
Cash flow
Central banks
Demand functions
Financial services
Institutional cash pools
Institutionalism
macroprudential
money
Securities markets
Shadow banking
Studies
Supply management
Treasury bills
U.S.A
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Summary:Through the profiling of institutional cash pools, this paper explains the rise of the “shadow” banking system from a demand‐side perspective. Explaining the rise of shadow banking from this angle paints a very different picture than the supply‐side angle that views it as a story of banks’ funding preferences and arbitrage. Institutional cash pools prefer to avoid too much unsecured exposure to banks even through insured deposits. Short‐term government guaranteed securities are the next best choice, but their supply is insufficient. The shadow banking system arose to fill this vacuum. One way to manage the size of the shadow banking system is by adopting the supply management of Treasury bills as a macroprudential tool.
ISSN:0963-8008
1468-0416
DOI:10.1111/fmii.12013