Post on 14-Mar-2022
Threepoints
1. amacrofinance approachtoshadowbanking
2. shadowmoneyandcredit
3. shadowbanking=financialisation ofdevelopment
1.Macrofinance
• Closeunderstandingoffinance
• balancesheets- money,credit,macroeconomicsofgrowth,poverty,inequality,financialcrises.
• shadowbanking=financialglobalisation
Financialglobalisation
• Financialsystemorganised aroundsecurities&derivativemarkets:– Businessmodelanchoredindailyvariationinpriceofsecurities:market-basedbanking
• Shadowbanking:pullinginstitutionalinvestorstoprovidefinancingviawholesalemoneymarkets
Bank- basedfinancialsystems
Securitiesmarkets-basedfinancialsystems
Securitiesmarkets
Wholesalemoneymarkets
Derivativemarkets
Loans Deposits
Interbankmoneymarket
Developmentstrategy
Socialcontractwiththestate
Investmentbanks(market-makers)
GlobalInstitutionalinvestors
Hedge/bondfunds
2.Shadowmoney
• Moneyinfinancialcapitalismisdifferenttomoneyinindustrialcapitalism
• ‘bankmoneyisdebtofbanks,broughtintobeingasbanksfinancebusiness’(Minsky,1967)
• shadowmoneyisdebtofsecuritiestraders(banks,assetmanagers,bondfunds,brokers)broughtintobeingtofinancesecurities,debtcollateralised bythoseverysecurities
Bankmoneyvs shadowmoney
Loans Deposits(M2)
Loans Bankmoney
Loans Deposits
SecuritiesShadowmoney
Assets AssetsLiabilities Liabilities
‘ShadowmoneybeginswhereM2ends’(Pozsar 2014)
Howisshadowmoneycreated– aquestionofmoneyness
Loans Deposits
Loans Bankmoney
Loans Deposits
SecuritiesShadowmoney
Moneyness – abilitytoconvertbankmoneyintocash atparondemand,andshadowmoneyintobankmoneyatparondemand
collateral
Securitiesmarkets
Repofinancing collateral=60
shortageoffunding=40
securitiesfallinmarketpricefrom100to60
Sellsecurities?firesales andlower
marketliquidity(liquidityspiral)
Bank- basedfinancialsystems
Securitiesmarkets-basedfinancialsystems
Securitiesmarkets
Wholesalemoneymarkets
Derivativemarkets
Loans Deposits
Interbankmoneymarket
Developmentstrategy
Socialcontractwiththestate
Investmentbanks(market-makers)
GlobalInstitutionalinvestors
Hedge/bondfunds
MaximisingFinanceforDevelopment
Shadow-bankingintoresilientmarket-basedfinance
LocalCurrencyBondMarketsInitiative
Portfolioflows(global)
institutionalinvestors
Securitisationmarkets
Liquid/ESGsecuritiesmarkets
Reengineerfinancialsystems
G20,WB,MDBs,EC
Infrastructureasanassetclass
ThedownsidesofMDBsnewfinancingmodel
• influence,ifnotaltogethershape,thetermsonwhichDECsjointheglobalsupplyofsecurities- hepreferencesofglobalbanksandglobalinstitutionalinvestors.
• MDBswillshapethedefinitionofwhatisa‘bankable’project -prioritiselargeinfrastructureprojectsattheexpenseofsmallerprojectswithmoredevelopmentalpotential.
• MDBsplantopioneerthesecuritisationinfrastructuresthatwilltransformbankableprojectsintotradablesecurities- significantrevenues&dominationforgloballysystemicfinancialinstitutions,
• MDBsco-designthe‘de-risking’/subsidiesmeasuresandpersuadingDECgovernmentstofinancetheassociatedcosts,asguarantorofprivatefinancialprofits.
• MDBsmaypushforDECpensionsystemstoconvergeontheUSmodelofprivatepensionsinordertocreatelocalinstitutionalinvestors dependentonglobalassetmanagers
Preparingbetterforthenextcrisis
• Managefinancialglobalisation:capitalcontrolsandmanagedexchangeratesforGlobalSouth
• Defendandrevivethewelfarestateifrentiers tobeeuthanised (FTT)
• Reclaimthedevelopmentalstate:politiciansreign,technocratsrule,businessescomply– highly-capable,development-orientedbureaucracyfocusedonproductivitygrowth&industrialupgrading