Interesting article on financing credit creation through re-pledging loan collateral aka re-hypothecation. Banks generally finance loans by obtaining deposits to obtain needed reserves for their reserve account at the central bank since it is the least expensive financing. "Shadow banking" uses re-pledging of collateral, called "re-hypothecation." Since the financial crisis, shadow banking and re-hypothecation are being explored key factors, the significance of which has previously not only gone largely unrecognized but also has been unsupervised and unregulated. Now experts are beginning to look into this.
Read it at Vox.eu
The (other) deleveraging: What economists need to know about the modern money creation process
Manmohan Singh, Senior Economist at the IMF, and Peter Stella, Director of Stellar Consulting LLC
For background, see The Financial Time | FT Alphaville
When safe assets return
by Cardiff Garcia
Does the shadow banking system’s relationship to monetary policy have any implication for the Smithian/neo-Wicksellian view, which awaits the natural rate of interest imminently rising to and exceeding the federal funds rate? Is there an equivalent for the shadow banking system — perhaps something related to collateral haircuts? What about the NGDP guys? The MMTers? The John Carney?MMR's Mike Sankowski comments.