`
Short-Term Funding Short- to Long-Term Cash
MMDAs
Households, Businesses, Governments
CDs
Equity Funding Long-Term Investments
Equity Equity
`
Equity
Short-Term Debt Instruments
Regulated Money Market Unregulated Money Market
Agency MB S Agency Discount Notes Intermediaries Intermediaries
*Conforming mortgages
RRs
Other*
Liquidity Puts A1 *ARS, MMMFs
A1 CP
AAA ABCP
AA-BBB BDP
Equity RRs
*Conforming student loans 2a-7 MMMFs Other*
A1 *ARS, MMMFs, as well as A1
A1 (AAA) ABS Tranches CP MTNs and term ABS CP
A1 ABCP ABCP
AAA BDP BDP
AA-BBB RRs RRs Short-Term Savings
Equity O ther* Other*
*Conforming SBA loans *TOBs and VRDOs A1 *ARS, MMMFs Money Market Portfolios
CP
ABCP
BDP
RRs
Other*
A1
AAA Offshore (non-2a-7) MMMFs *ARS, MMMFs, as well as A1
AAA
AA-BBB A1 MTNs and term ABS CP
ABCP AA-BBB
LTD MTNs CP ABCP
Equity Repo Equity Supers CNs* ABCP BDP
LTD Haircuts BDP RRs
Households Equity O/C High-Yield CLOs RRs Ultra-Short Bond Funds Other* Households and N onprofits
(LBO Loans) Other* A1 *MMMFs
A1 *TOBs and VRDOs CP
AAA ABCP
AA-BBB BDP
2nd Lien Equity RRs
Equity O/C O/C O/C Other*
CP
*FHC affiliate Consumer ABS *ARS, MMMFs, as well as A1
ABCP (Credit Card ABS) MTNs and term ABS CP
BDP A1 ABCP
AAA BDP
AA-BBB RRs
Equity O/C Equity Other* N onfinancial Corporates
O/C *ARS, MMMFs
an Banks
DW
AAA TAF
AA-BBB FX Swaps
LTD MTNs Tri-Party Repo System TSLF
Supers
CNs* Federal, State TSLF
Nonfinancial Businesses Equity Tri-Party Clearing Banks* and Local Governments PDCF
CPFF
TALF
AMLF
MMIFF
ML, LLC
Equity O/C O/C an Banks
ML II, LLC
*BoNY and JP Morgan Chase
ML III, LLC
LSAPs
RoW
O/C Equity (Foreign Central Banks) Equity
RMBS
(1st lien, private label) MT Ns Cash Reinvestment Accounts
CP
A1 A1
ABCP AAA CP
BDP
AA-BBB ABCP
Equity BDP RoW
Governments RRs (Sovereign Wealth Funds)
Equity O/C Subprime ABS Ot her*
*Done by custodian banks
(2nd lien, subprime, HE LOCs) Trading Book *MMMFs, MTNs, term ABS and on an agent basis.
A1 TOBs and VRDO s
AAA
AA-BBB
Equity
Haircuts Cash Reinvestment Accounts *Issued to central banks
CMBS and High-Yield CLOs A1 in exchange for investibe FX
(LBO Loans) CP Long-Term Savings
A1 ABCP
AAA BDP Fixed Income Portfolios*
AA-BBB RRs
MTNs
Equity Equity Other* *Done by real money accounts
*MMMFs, MTNs, term ABS and on a principal basis.
TOBs and VRDOs
CNs
*Bank, Shadow B ank
and Corporate Debt
Consumer ABS
(Card, Auto, Stu dent Loan)
CP A1
AAA
Cash
AA-BBB
MTNs
Equity
LTD Equity Portfolios*
Haircuts
Equity
Equity O/C Other ABS
(Floorplan, Equipment, Fleets)
A1
AAA
*Mutual Funds, ET Fs, Separate Accounts
AAA
AA-BBB
*Bank and Corporate Debt
AA-BBB
MTNs
Equity
CNs*
O/C
CP Middle-Market CLOs
ABCP (Loans to SMEs)
Cash
`
LTD AA-BBB
Equity
Equity Equity Equi ty
*Term ABS and CDO
debt and equity t ranches
Public Equity
Cash
MTNs
LTD
Structured Credit Equity
Equity
*Hedge Funds and Private Equity
(only credit exposures)
Maiden Lane LLC
3/11/08 a nd 3/16/08, respect ively
Portfolio Protection*
Equity
Households, Businesses, Governments
Households, Businesses, Governments Equity and the Rest of the World (RoW)
Equity
AA-BBB
Equity
Equity
Source: Pozsar, Zoltan, Tobias Adrian, Adam Ashcraft, and Hayley Boesky. “Shadow Banking.” Federal Reserve Bank of New York Economic Policy Review 19, no. 2 (December 2013).
Commercial Bank*
Step (7): Wholesale Funding
(Shadow Bank " Depositors")
ABS
R
eserve
s
Warehouse Hedges
Long-Term Synthetic Liabilities
Broker-dealer CVA desks , ABS pipeline hedges,
Counterparty Hedges
Warehouse Hedges
Equity
Debt
Insu-
rance
TL GP
Wholesale Funding
(Term Debt Funding)
*Funded by UST's $50 bill ion
No
E
xplicit
Fees
GSEs, DoE, SBA
Federal Government
Agency Debt Purchases
Agency MB S Purchases
Insurance
Guarantees
Step (4): ABS Warehousing
Finance Company*
The "Synthetic" Shadow Banking System
Broker-Dealers*
Funded Synthetic CDOs*
Consumers
Finance Company*
Fannie and Freddie*
Credit Hedge Funds
(Credit-Linked Notes)
Unfunded Synthetic CDOs*
Single-Name and Index
CDS Indices
Single-Name and Index
Assets
B
ond(s)
Sovereign CDS
P
rotectio
n
Bought
P
rotectio
n
Sold
Agency Debt Purchases
Proprietary trading desks, credit hedge funds, etc.
Term
Savings
Commercial Banks
AA-BBB
Synthetic Exposures*
Counterparty Risks*
Credit
Bets
Term
Savings
Hedgers*
Deposits
Bank Equity
Real Money Accounts*
Equity Portfolios
Money Market "Portfolios"
Loans
The Traditional Banking System
("Originate-t o-Hold-to-Maturity-and-Fund-with-Deposits")
unfunded liabiliti es, etc.
Loans,
ABS
and
CDOs
U
nfunded
P
rotection
Referencing ABS and single-na me CDS
*Referencing single-name CDS indic es, etc.
*Inability to meet
T
reasury
s
CDS
AAA AAAAAA
[…]
Equity
L
oan(s)
Structured Credit and Loan
negative basi s traders, real money accounts, etc.
Speculators*
U
nfunded
P
rotection
P
rotectio
n
Sold
*Market Makers
Funded
P
rotection
"Naked"
Positions
Funded
P
rotection
C
ounterparty Hedges
Hedge
s
Funded
P
rotection
*Referencing corporate loan indice s, etc.
*Hedging Motives
Insured
Assets
*Speculati ve Motives
indices, etc .
Ultimate Creditors
B
ond(s) CDS
U
nfunded
P
rotection
P
rotectio
n
Sold
[…]
CDS Counterparty Hedges
Funded
P
rotection
Ultimate Borrowers
Corporate CDS
CDPCs
CPDO s*
Short-Term Synthetic Liabilities
Warehouse Hedges
Synthetic Credit Liabilities
Private Risk Repositories
The "Synthetic" Shadow Banking System
(Derivative s-Based Risk Repositories)
Warehouse Hedges
Loans,
ABS
and
CDOs
Counterparty Hedges
Warehouse Hedges
Warehouse and
Counterparty Hedges
AAA
Loans,
ABS
and
CDOs
9/19/200 8
10/21/20 08
11/10/20 08
Subprim
e ABS
Reserves
ABCP RMBS
10/7/200 8
11/25/20 08
3/24/200 8
10/11/20 08
12/12/20 07
12/12/20 07
T
ri-Party
C
ollatera
l
Reserves ABCP
R
eserve
s
Non-
r
epo M
M
i
nstrum
e
nts
R
eserve
s
$ FX
CP
Reserves AAA Reserves
W
areho
u
s
ed AB
S
Reserves
CDS
on
CDOs
R
eserve
s
CPFF
TAL F
Maiden Lane III LLC
TAF
FX Swaps
TSLF /PD CF
Equity
Equity
Private Credit Transformation
(Tail Risk Absorption)
Provision of Risk Capital
Private Risk Repositories
*Unaffiliated wi th originators!
Credit Insurance
(Mortgage Insurers)
Credit Hedges
Premia
Credit
Insuranc
e
Premia
Credit
Insurance Premia
Credit
I
nsuranc
e
(P
ar Put
s)
Client
Funds
Credit " References"
Mortgage Insurers*
Monoline Insurers*
*Unaffiliated wi th originators!
*Unaffiliated wi th originators!
MTNs
Equity
Tranches
Mezz
ABS
Super
Senior
Credit Insurance
(AIG FP)
Credit Insurance
(AIG FP)
[…]
MTNs
LTD
Loans
AAA
(A4)
*Public and Privat e Pension Funds,
Debt
Tranches
Pension Funds, Insurance Companies*
Structured Credit Portfolios*
Term
Savings
HG
ABS
Super
Senior
Structured
Credit
Credit Insurance
(Monolines)
A4 and AA-BBB ABS Tranches
AAA
Diversified Insurance Co.
LPF Cs
Client
Funds
Long-Term Debt
Alternative Asset Managers*
Pension
Liabilities
Captive Finance Company
*Capital Notes
Loans
AA-BBB
REIT s
BDP
MTN
*Independent conduit
Industrial Loan Company*
A1
Loans ABCP Loans
CP
LTD
The "E xternal" Shadow Banking System
(DBDs: Originate-to-
Distribute
Model | Independent Specia lists: Originate-to-
Fund
Model)
Repos
Off-Balance She et
Equity
Liquidity Puts*
A2 & A3 (AAA) ABS Tranches
Public
Equity
Term
Savings
ABS
Agency
LTD
Structured
Credit
Long-Term nstruments (LTD)
Cash
C
ollatera
l
ABCP
Loans ABCP
MTNs Loans
Private
LTD
A
A-BB
B
*Broker-dealer affili ate
*ARSs, TOBs, VRDOs
*Medium-term debt
Independent Specialists' Credit Intermediation Process
Standalone Finance Company
Credit Hedge Fund
Loans
Loans
*Finance company affili ate
[…]
Term
Savings
LTDs
Cash
Collateral
Securities Lending*
Agency Debt*
Wholesale Funding
(Medium-Term Funding)
Securities
Lent
Loans
AAA
(A2-A3)
Cash
Collateral
Loans
Long-
Term
Munis
Short-
Term
Munis
Loans
Agency
Debt
ABS
Industrial Loan Company*
AAA
Local Governments
Loans
B
rokere
d
D
eposit
s
AA-BBB
Tax
R
evenue
s
Muni
Bonds
B
rokere
d
D
eposit
s
Brokerage
Clients'
Cash
Balances
FX
R
eserve
s
Bonds
*
Mezzanine CDOs
Super
Seniors
Principal Securities Lending
BBB
Supers
*Broker-dealer affili ate
Savings:
Export
Revenue
"
Equity
"
Tax
R
evenue
s
State
Bonds
*Broker-dealer affili ate
AA-BBB
Loans
A
A-BB
B
Repos
Equity
Tax
R
evenue
s
Bonds
State Governments
AAA
Prime Broker
Super
Seniors
Repos
Loans
*Broker-dealer affili ate
AAA
Securities
Lent
A
A-BB
B
ABS
High-Grade CDOs
Asset Manager,
Off-Balance She et
Securities Lending*
Supers
Private
MTNs
Cash
C
ollatera
l
Loans ABCP
Federal Government
Tax
R
evenue
s
T
reasury
Bonds
Credit Hedge Fund*
Broker-Dealer*
Loans Repos
MTNs
OMO
C
ollater
a
l
S
avings:
FX
R
eserve
s
Local
C
urrenc
y
Single-Seller Conduit
DBDs' Credit Intermediation Process
Medium-Term Instruments
Agent Securities Lending
Loans
AA-A
Private Equity
Euro
Deposits
Portfolio Companies
Firms
ABCP
LBO
Loans
*European bank affili ated
AAA
ABCP
Arbitrage Conduit
Assets
Loans
Businesses
Reverse
Repos
CRE
CRE
Loans
Loans
Bonds
Europe
A
A-BB
B
Businesses
Europe
S
avings:
Excess
Cash
"
Equity
"
Federal Reserve
Invest-
ments
C&I
Loans
[…]
Euro
Deposits
R
eserve
s
S
avings:
Excess
Cash
"
Equity
"
Wholesale Funding
(Overnight Funding)
Mezz
ABS
Mezz
CDO
ABS
C
ollateral
European Banks' Shadow Banking Activites
Cash lending
for
securities col lateral
Mezz
CDO
The "Internal" Shadow Banking System
(Private Origi nate-to-
Distribute
Model)
CP
ABCP
*FHC affiliate
*ARSs, TOBs, VRDOs
Multi-Seller Conduit*
Goods
&
S
ervices
Loans Loans
A
A-BB
B
ABCP
Loans
MTNs
Sweep Accounts
Long-
Term
Munis
Loans ABCP
Equity
Liquidity Puts*
Off-Balance She et
AA-BBB
Loans
Structuring
and
Syndication
Loans
R
everse
R
epos*
ABCP
Equity
AAA
S
avings:
Excess
Cash
BBB
Supers
AAA
*BHC affiliate
"
Equity
"
ABS
$1 NAV
Shares
BDPs
BDPs
Assets
Loans
*FHC affiliate
ABCPHome
1
st Lien
Subprime Homeowners
$
1 NA
V
Shares
A
A-BB
B
Loans CP
$1 NAV
Shares
$
1 NAV
Shares
High-Grade CDOs
AA-A
Supers
*Capital Notes
$
1 NAV
Shares
SIV, SIV-Lite
Off-Balance She et
Home
1
st Lien Loans
Dollar
Deposits
Loans
Securities
$
1 NA
V
Shares
Direct
Investmen
ts
Short-
Term
Savings
FH Cs' Credit Intermediation Process
$1 NAV
Shares
Repos
CP
Loans
ABCP
A
A-BB
B
$1 NAV
Shares
(Retained Portfolios)
Off-Balance She et
L
oans*
Agency
MBS
Discount
Notes
Loans A1
Private
ABS
Agency
Debt
Munis
ARSs
TOBs
or
VRDOs
FFE LP ABS
Private
ABS
Agency
Debt
(Retained Portfolios)
CP
ABS
FH
LBs
Fannie and Freddie
Cash "Plus" Funds
Agency
Bills
The Government-Sponsored Shadow Banking System
(Public Originat e-to-
Distribute
Model)
Enhanced Cash Funds
$
1 NA
V
Shares
Ultimate Borrowers
CMO s
Direct Money Market Investors
Ultimate Creditors
L
oans*
Agency
Pass-
Through
s
Agency
MBS
CMO
T
ranche
s
Corporate Treasurers
A1
Off -Balance Sheet
ABS Intermediatio n
On-Ba lance Sheet
ABS Intermediatio n
The GSEs' Credit Intermediation Process
FH LBs
(Time-Tranched Agency MBS)
Federal Government
Off-Balance She et
Agency
MBS
Discount
Notes
M
MMF
I
nsurance
The "Cash" Shadow Banking System
Deposit Insurance
(FDIC)
Liability Insurance
(Federal Government)
Credit Insurance
(GSEs, DoE, SBA )
Liability Insurance
(Federal Government)
Liability Insurance
(EU Government)
Insurance
Premia
Deposit
I
nsuranc
e
FDIC
No
E
xplicit
Fees
No
Explici
t
Fees
Implicit
I
nsuranc
e
Federal Government
11/25/20 08
A
gency
MBS
Reserves
Deposit Insurance
(FDIC)
Public Risk Repositories
(Tail Risk Absorption)
Public Risk Repositories
Public Credit Transformation
(Tail Risk Absorption)
European Sovereign and
Quasi-Sovereign States
Bank
Equity
11/25/20 08
Temporary
PBGC
Pension Funds
Client
Funds
Dollar
D
eposit
s
Equity Funding
Agency
Debt
R
eserve
s
Discount Window
Loan
C
ollatera
l
Agency
Debt
Reserves
Term
Savings
Traditional Banks' Lending Process
Asset Managers*
Bank Treasurers
Bank
Equity
Loans
Bank
Equity
LGIP s
Loans
Exchange Stabili zation Fund
$1 NAV
Shares
Insurance
Premia
*Asset Managers, Insurance Companie s and
ABS
Implicit
Insurance
9/18/200 8
MMM F Guarantee
Households, Businesses
Checking
Account
and the Rest of the World
The Traditional Banking System
CDs
Ultimate Creditors
Depositors
Deposits Equity
Step (1):
Loan Origination
TBA
Market
Step (3):
ABS Issuance
Short-
Term
Savings
Ultimate Borrowers
R
eserve
s
11/25/20 08
No
Explicit
Fees
Implicit
Insurance
Debt Funding
(Short and Long-Term Deposits
Implicit
Insurance
Assets
Borrowers
Loans
Asset Manager*
AAA
Loans
Checking
Accounts
Wholesale Funding
(Short-Term Funding)
AA-BBB
Arbitrage Conduit
No
E
xplicit
Fees
Implicit
Insurance
SBA ABS
(ABS Warehouse Conduits)
Structuring
and
Syndication
Single-Seller Conduit
(Warehouse and Term)
SIV
Loans ABCP
(Warehouse and Term)
Loans
Loans
Discount
Notes
Step (2): Loan Warehousing
Agency
Debt
Equity
Step (5): ABS CDO Issuance
L
oans*
*Capital Notes
Off-Balance She et
ABCP
Mezzanine CDOs
Off-Balance She et
A
A-BB
B
Short-
Term
Munis
Loans
Brokered
Deposits
AAA
and Life and P&C Insurance Companies
CDOs
Subprime, RMBS, CMB S
[…]
Mezz
ABS
Hybrid Conduits
*FHC affiliated
Maiden Lane II LLC
MMI FF
AML F
Trading Books
Catalogue: ,
Shadow Bank Liabi lities
Step (6): ABS "Intermediat ion"
Trading Books
Repo Conduits
ABCP
Off-Balance She et
Loans
Bonds
Assets
" Prime" Homeowners
*DBD affiliate
Loans
Single-Seller Conduit
Multi-Seller Conduit*
Broker-Dealer*
Multi-Seller Conduit*
The Shadow Banking System
Loans
Bonds
("Rent-a-Conduit" )
Broker Sweep Accounts
Single-Seller Conduit
ABS
and
CDO
Equity
Loans
ABS
Loans
ABS
Equity
Hybrid Conduits
ABCP
CP
Conceptualized, designed, and created by Zoltan Pozsar
