The gross measure of funding liquidity is distinguished from the net credit supply using the financial sector balance sheet. This embraces shadow banks as well as traditional high street banks. The growth of US and World shadow banking is enumerated. Cash-rich wholesale markets lie behind the recent rise of shadow banking, and these are being fed by CICPs (corporate and institutional cash pools) and explain the rise of the repo as a key financial instrument. The greater use of collateral and access to unregulated, offshore pools of money in the Eurodollar markets have reduced Central Bank control over liquidity creation, leading to a collapse in the traditional money multiplier. The alternative concept of the shadow money base is introduced.
KeywordsGlobal Liquidity Cash pools Repos Funding Wholesale markets Shadow banks
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