How the Financial System Works post-2008 crisis

explanation about how the finance system works

1. How the Financial System Works
1
-A Map of Money Flows in the Global Financial Ecosystem -
by Zoltan Pozsar
An Appendix to the paper “Shadow Banking: The Money View” (Pozsar, 2014)
Senior Adviser
Office of Financial Research, U.S. Treasury

2. 2. The Hierarchy of Access.
2
3. The Hierarchy of Uses. .
4. The Dealer Eco-System.
1. The Hierarchy of Money .
5. The Macro Perspective.
6. Policy Implications. ..

3. Four core institutions:
Central bank,…
Source: Pozsar (2014)
3Central Bank
(Federal Reserve)

4. Source: Pozsar (2014)
4
Four core institutions:
Central bank, banks (small and
big),…Central Bank
(Federal Reserve)
Banks
(retail)
Banks
(wholesale)

5. Source: Pozsar (2014)
5
Four core institutions:
Central bank, banks (small and
big), dealers,…Central Bank
(Federal Reserve)
Dealer Banks
Banks
(retail)
Dealer Banks
Banks
(wholesale)

6. Source: Pozsar (2014)
6
Four core institutions:
Central bank, banks (small and
big), dealers and money funds.Central Bank
(Federal Reserve)
Dealer Banks
Money Funds
Banks
(retail)
Dealer Banks
Money Funds
Banks
(wholesale)

7. Four core money claims:
Currency,…
Source: Pozsar (2014)
7Central Bank
(Federal Reserve)
Dealer Banks
Currency
Money Funds
Banks
(retail)
Dealer Banks
Money Funds
Liabilities
Banks
(wholesale)

8. Source: Pozsar (2014)
8
Four core money claims:
Currency, deposits,…Liabilities
Banks
(wholesale)
Deposits
(o/n)
Banks
(retail)
Dealer Banks
Deposits
Money Funds
(o/n)
Central Bank
(Federal Reserve)
Dealer Banks
Currency
Money Funds

9. Source: Pozsar (2014)
9
Four core money claims:
Currency, deposits, repos,…(o/n)
Liabilities
Banks
(wholesale)
Deposits
(o/n)
Banks
(retail)
Dealer Banks
Deposits
Money Funds
Repos
(o/n)
Central Bank
(Federal Reserve)
Dealer Banks
Currency Repos
(o/n)
Money Funds

10. Source: Pozsar (2014)
10
Four core money claims:
Currency, deposits, repos
and constant NAV shares.(o/n)
Liabilities
CNAVs
(o/n)
Banks
(wholesale)
Deposits
(o/n)
CNAVs
Banks
(retail)
Dealer Banks
Deposits
Money Funds
(o/n)
Repos
(o/n)
Central Bank
(Federal Reserve)
Dealer Banks
Currency Repos
(o/n)
Money Funds

11. Source: Pozsar (2014)
11
Two categories of assets:
Public assets:
T-Bills –Treasury bills
T-Notes –Treasury notes
Private assets:
P-Bills -CD, CP, ECP, etc.
P-Notes -bonds, RMBS, ABSLiabilities
Deposits CNAVs
(o/n) (o/n)
Repos
(o/n) (o/n)
Banks
(wholesale)
Money Funds
(o/n)
Private Assets
Banks
(retail)
Dealer Banks
Deposits
(o/n)
Money Funds
CNAVs
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
Currency Repos

12. Source: Pozsar (2014)
12
Two categories of assets:
Public assets:
T-Bills –Treasury bills
T-Notes –Treasury notes
Private assets:
P-Bills -CD, CP, ECP, etc.
P-Notes -bonds, RMBS, ABSLiabilities
CNAVs
(o/n)
Deposits
(o/n)
(o/n)
Private Assets
Banks
(retail)
Dealer Banks
Deposits
Money Funds
(o/n)
CNAVs
Dealer Banks
T-Notes Currency Repos
(o/n)
Assets
Public Assets
Central Bank
(Federal Reserve)
Banks
(wholesale)
Money Funds
(o/n)
Repos

13. Source: Pozsar (2014)
13
Two categories of assets:
Public assets:
T-Bills –Treasury bills
T-Notes –Treasury notes
T-Repos –Treasury repos
Private assets:
P-Bills -CD, CP, ECP, etc.
P-Notes -bonds, RMBS, ABSLiabilities
Deposits CNAVs
(o/n) (o/n)
Repos
(o/n) (o/n)
Banks
(wholesale)
Money Funds
(o/n)
Private Assets
Banks
(retail)
Dealer Banks
Deposits
…
(o/n)
T-Notes
Money Funds
CNAVs
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Bills T-Repos

14. Source: Pozsar (2014)
14
Two categories of assets:
Public assets:
T-Bills –Treasury bills
T-Notes –Treasury notes
T-Repos –Treasury repos
T-CNAVs –Treasury CNAVs
Private assets:
P-Bills -CD, CP, ECP, etc.
P-Notes -bonds, RMBS, ABSLiabilities
Deposits CNAVs
(o/n) (o/n)
Repos
(o/n) (o/n)
Banks
(wholesale)
Money Funds
(o/n)
Private Assets
Banks
(retail)
Dealer Banks
Deposits
…
(o/n)
T-Notes
Money Funds
(government-only)
T-Bills T-CNAVs
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Bills T-Repos

15. Source: Pozsar (2014)
15
Two categories of assets:
Public assets:
T-Bills –Treasury bills
T-Notes –Treasury notes
T-Repos –Treasury repos
T-CNAVs –Treasury CNAVs
Private assets:
P-Bills -CD, CP, ECP, etc.
P-Notes -bonds, RMBS, ABS…
T-Notes
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Bills T-Repos
(o/n)
Money Funds
(government-only)
T-Bills T-CNAVs
Private Assets
Banks
(retail)
Dealer Banks
P-Loans Deposits
Money Funds
(o/n) (o/n)
Banks
(wholesale)
Deposits
(o/n)
(o/n)
Repos
Liabilities
CNAVs
(o/n)

16. Source: Pozsar (2014)
16
Two categories of assets:
Public assets:
T-Bills –Treasury bills
T-Notes –Treasury notes
T-Repos –Treasury repos
T-CNAVs –Treasury CNAVs
Private assets:
P-Bills -CD, CP, ECP, etc.
P-Notes -bonds, RMBS, ABSP-Notes Deposits CNAVs
Liabilities
…
(o/n) (o/n)
P-Loans
(o/n) (o/n)
Banks
(wholesale)
Money Funds
T-Notes
Money Funds
(government-only)
Private Assets
Banks
(retail)
Dealer Banks
P-Loans Deposits
(o/n)
Repos
T-Bills T-CNAVs
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Bills T-Repos
…
(o/n)

17. Source: Pozsar (2014)
17
Two categories of assets:
Public assets:
T-Bills –Treasury bills
T-Notes –Treasury notes
T-Repos –Treasury repos
T-CNAVs –Treasury CNAVs
Private assets:
P-Bills -CD, CP, ECP, etc.
P-Notes -bonds, RMBS, ABS
P-Repos –private reposP-Notes Deposits CNAVs
Liabilities
…
(o/n) (o/n)
P-Loans
(o/n)
…
(o/n)
Banks
(wholesale)
Money Funds
T-Notes
Money Funds
(government-only)
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
P-Loans Deposits P-Bills
P-Notes
(o/n)
P-Repos
T-Bills T-CNAVs
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Bills T-Repos
…
(o/n)

18. Source: Pozsar (2014)
18
Two categories of assets:
Public assets:
T-Bills –Treasury bills
T-Notes –Treasury notes
T-Repos –Treasury repos
T-CNAVs –Treasury CNAVs
Private assets:
P-Bills -CD, CP, ECP, etc.
P-Notes -bonds, RMBS, ABS
P-Repos –private repos
P-CNAVs –private CNAVsP-Notes Deposits P-Bills P-CNAVs
Liabilities
…
(o/n) (o/n)
P-Loans
(o/n)
…
(o/n)
Banks
(wholesale)
Money Funds
(prime)
T-Notes
Money Funds
(government-only)
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
P-Loans Deposits P-Bills
P-Notes
(o/n)
P-Repos
T-Bills T-CNAVs
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Bills T-Repos
…
(o/n)

19. Source: Pozsar (2014)
19
Deposits’ special function:
Banks form the backbone of
the payments system and fa-
cilitatethe net payments
(via deposits) of all enti-
ties that are lower in the
system-hierarchy, including
dealers and money funds.T-Bills T-CNAVs
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Bills T-Repos
…
(o/n)
T-Notes
Money Funds
(government-only)
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
P-Loans Deposits P-Bills
P-Notes
(o/n)
P-Repos
(o/n)
…
(o/n)
Banks
(wholesale)
Money Funds
(prime)
P-Notes Deposits P-Bills P-CNAVs
Liabilities
…
(o/n) (o/n)
P-Loans

20. Source: Pozsar (2014)
20
Storing payment surpluses:
What happens with net pay -
mentsurplusesat the end of
the day? Through what ins -
trumentsare money balances
stored within the system?
For every institution, money
is something different.
This is the intra-system
hierarchy of money…P-Notes Deposits P-Bills P-CNAVs
Liabilities
…
(o/n) (o/n)
P-Loans
(o/n)
…
(o/n)
Banks
(wholesale)
Money Funds
(prime)
T-Notes
Money Funds
(government-only)
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
P-Loans Deposits P-Bills
P-Notes
(o/n)
P-Repos
T-Bills T-CNAVs
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Bills T-Repos
…
(o/n)

21. Source: Pozsar (2014)
21
Intra-system money hierarchy:
Reserves at the Fed
are money for banks.(o/n)
…
P-Loans
Assets
Public Assets
Central Bank
(Federal Reserve)
Reserves
P-Loans
Dealer Banks
(government desk)
T-Notes Currency T-Bills T-Repos
(o/n)
…
T-Notes
Money Funds
(prime)
Reserves
(o/n)
T-Bills T-CNAVs
Money Funds
(government-only)
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits P-Bills P-Repos
(o/n) (o/n) (o/n)
…
P-Notes
…
Liabilities
(o/n) (o/n) (o/n)
Banks
(wholesale)
Deposits P-Bills P-CNAVs

22. Source: Pozsar (2014)
22
Intra-system money hierarchy:
o/n T-Repos with wholesale
banks are money for dealers.(o/n)
Assets
Public Assets
Central Bank
(Federal Reserve)
Reserves
Banks
(wholesale)
…
P-Loans
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
(o/n) (o/n)
…
T-Notes
(o/n)
Money Funds
(government-only)
T-Bills T-CNAVs
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits P-Bills P-Repos
(o/n) (o/n) (o/n)
…
P-Loans
…
P-Notes
Money Funds
(prime)
Liabilities
Reserves T-Repos P-Bills P-CNAVs
(o/n) (o/n) (o/n)
…
Deposits
(o/n)

23. Source: Pozsar (2014)
23
Intra-system money hierarchy:
o/n T-Repos w/ dealers are
money for government MFs.P-Loans
…
P-Loans
(o/n)
Assets
Public Assets
Central Bank
(Federal Reserve)
Reserves
Private Assets
Banks
(retail)
(o/n) (o/n)
…
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
(o/n) (o/n)
…
T-Notes
Money Funds
(government-only)
Reserves Deposits P-Bills P-Repos
T-Repos T-CNAVs
(o/n) (o/n)
(o/n)
…
…
Dealer Banks
(credit desk)
(o/n)
P-Notes
Banks
(wholesale)
Money Funds
(prime)
Liabilities
T-Bills
…
Deposits
(o/n)
Reserves T-Repos P-Bills P-CNAVs
(o/n) (o/n)

24. Source: Pozsar (2014)
24
Intra-system money hierarchy:
o/n P-Repos with dealers
are money for prime MFs.Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
Reserves (o/n) (o/n)
(o/n) …
T-Notes
(o/n) (o/n)
Money Funds
(government-only)
T-Repos T-CNAVs
…
T-Bills
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits P-Repos P-Repos
(o/n) (o/n) (o/n)
…
P-Loans P-Notes
…
Banks
(wholesale)
Money Funds
(prime)
Reserves T-Repos P-Repos P-CNAVs
Liabilities
…
(o/n)
P-Loans Deposits P-Bills
(o/n)
(o/n) (o/n) (o/n) (o/n)
… …

25. Source: Pozsar (2014)
25Liabilities
?
P-Loans Deposits P-Bills
(o/n)
(o/n) (o/n) (o/n) (o/n)
… … …
Banks
(wholesale)
Money Funds
(prime)
Reserves T-Repos P-Repos P-CNAVs
P-Loans P-Notes
P-Repos
(o/n) (o/n) (o/n) (o/n)
… …
T-Bills
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits P-Repos
(o/n) (o/n)
…
Money Funds
(government-only)
T-Repos T-CNAVs
(o/n) (o/n)
(o/n) …
T-Notes
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
Reserves

26. Source: Pozsar (2014)
26
The sovereign as a “bank” :
Without the sovereign the
money matrix is incomplete.
We do not typically think
of her as a bank, but the
sovereign is also capable
of absorbing money demand.Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
Reserves (o/n) (o/n)
(o/n) …
T-Notes
(o/n) (o/n) (o/n) (o/n)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Reserves T-Bills T-Repos T-CNAVs
…
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits P-Repos
… …
(o/n) (o/n) (o/n) (o/n)
P-Loans
T-Bills
P-Repos
P-Notes
Banks
(wholesale)
Money Funds
(prime)
Reserves T-Repos P-Repos P-CNAVs
(o/n) (o/n) (o/n) (o/n)
… … …
Liabilities
P-Loans Deposits P-Bills
(o/n)

27. Source: Pozsar (2014)
27
What are money-like claims?
Par at maturity versus
par on demand claims.
Par at maturity in the
near term (o/n < 1 yr).
Breakable and negotiable
claims that do not trade
at par in real time (puts
prior to maturity subject
to penalty, market risks).Liabilities
P-Loans Deposits P-Bills
(term) (term)
(o/n) (o/n) (o/n) (o/n)
… … …
Banks
(wholesale)
Money Funds
(prime)
Reserves T-Repos P-Repos P-CNAVs
P-Repos
P-Notes P-Repos
(term) (term)
P-Loans Deposits
T-Bills T-Bills
(term) (term)
… …
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits P-Repos
… … … …
(o/n) (o/n) (o/n) (o/n)
T-Notes T-Repos
(o/n) (o/n) (o/n) (o/n)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Reserves T-Bills T-Repos T-CNAVs
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
Reserves (o/n) (o/n)
(o/n) … …
(term)

28. The alchemy of banking:
Take more [o/n liquidity],
give less [o/n liquidity]
and put the rest in term…
Source: Pozsar (2014)
28(term)
T-Notes Currency T-Repos T-Repos
T-Notes T-Repos
(term)
…
<
Sovereign
(U.S. Treasury)
(o/n) (o/n)
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
…
T-Bills
(term)
Reserves (o/n) (o/n)
Reserves T-Bills
(o/n)
…
P-Loans
T-Repos T-CNAVs
… …
<
Money Funds
(government-only)
(o/n) (o/n)
T-Bills
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
… … …
< <(o/n) (o/n) (o/n) (o/n)
(o/n) (o/n) (o/n)
Reserves Deposits P-Repos P-Repos
Deposits P-Notes P-Repos
(term) (term)
Reserves T-Repos P-Repos P-CNAVs
Banks
(wholesale)
Money Funds
(prime)
(o/n)
… … …
<<
Liabilities
P-Loans Deposits P-Bills
(term) (term)

29. Liabilities
(term) (term)
… … …
P-Loans Deposits P-Bills
(o/n)
(term) (term)
Banks
(wholesale)
Money Funds
(prime)
(o/n)<(o/n) (o/n)<
Reserves T-Repos P-Repos P-CNAVs
… … …
Deposits P-Notes P-Repos
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits P-Repos P-Repos
(o/n)<(o/n) (o/n)<(o/n)
… …
T-Bills T-Bills
(term) (term)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
(o/n) (o/n) (o/n)<(o/n)
Reserves T-Bills T-Repos T-CNAVs
T-Notes T-Repos
(term)
(o/n)<(o/n)
… …(o/n)
…
P-Loans
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
Reserves Source: Pozsar (2014)
29
The alchemy of banking:
Take more [o/n liquidity],
give less [o/n liquidity]
and put the rest in term…
…this exposes “banks” to
rollover risks, and if
there is a run you ask:
“do I have enough [o/n]
liquidity to survive?”.
Different institutions
have different sets of
backups for survival if
o/n liquidity runs out.
It is the type and mix of
these backups (or “puts”)
that determine the strength
of money claims’ promise of
at par on demand liquidity.

30. Hierarchy of liquidity puts:
Money funds can borrow
only limitedamounts.
If this option is exhausted
money funds must sell.
In a panic, this will likely
spiral into a fire sale.
Source: Pozsar (2014)
30(term)
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
…
T-Bills
(term)
Reserves (o/n) <(o/n)
… …(o/n)
T-Notes T-Repos
(term)
Money Funds
(funding/market)
Sovereign
(U.S. Treasury)
Reserves T-Bills T-Repos T-CNAVs
(o/n) (o/n) (o/n) <(o/n)
Reserves Deposits P-Repos P-Repos
…
T-Bills
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
(o/n) <(o/n) (o/n) <(o/n)
(o/n)
(term) (term)
(o/n) <
… … …
Deposits P-Notes P-Repos
<
… … …
Reserves T-Repos P-Repos P-CNAVs
Money Funds
(funding/market)
Banks
(wholesale)
P-Loans
…
Liabilities
(term) (term)
P-Loans Deposits P-Bills
(o/n) (o/n)

31. Hierarchy of liquidity puts:
Dealers have more roomto
borrow against their assets.
If this option is exhausted
dealers must sell too.
In a panic, this will likely
spiral into a fire sale too.
Source: Pozsar (2014)
31Assets
Public Assets
Central Bank
(Federal Reserve)
T-Notes Currency T-Repos T-Repos
…
T-Bills
(term)
Reserves
(term)
(o/n) <(o/n)
… …
T-Notes T-Repos
(term)
Sovereign
(U.S. Treasury)
Money Funds
(funding/market)
Reserves T-Bills T-Repos T-CNAVs
(o/n) (o/n) (o/n) <(o/n)
…
T-Bills
Private Assets
Banks
(retail)
(o/n) <(o/n) (o/n) <(o/n)
<(o/n)
(term) (term)
P-Bills
Reserves Deposits P-Repos P-Repos
… … …
Deposits P-Notes P-Repos
Reserves T-Repos P-Repos P-CNAVs
Banks
(wholesale)
Money Funds
(funding/market)
Deposits
(o/n) <(o/n) (o/n)
(o/n)
P-Loans
…
Dealer Banks
(funding/market)
Liabilities
Dealer Banks
(funding/market)
(term) (term)
… … …
P-Loans

32. Hierarchy of liquidity puts:
Borrowing against assets and
selling assets is access to
funding and market liquidity.
Funding and market liquidity
are privateliquidity puts.
They both depend on private
market participants (banks
and dealers) for execution.
Source: Pozsar (2014)
32Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(funding/market)
T-Notes Currency T-Repos T-Repos
Reserves (o/n) <(o/n)
… …
T-Notes T-Repos
(term)
Reserves T-Bills T-Repos T-CNAVs
Sovereign
(U.S. Treasury)
Money Funds
(funding/market)
(o/n) (o/n) (o/n) <(o/n)
… …
T-Bills T-Bills
(term) (term)
Private Assets
Banks
(retail)
Dealer Banks
(funding/market)
Reserves Deposits P-Repos P-Repos
(o/n) <(o/n) (o/n) <(o/n)
… … …
Deposits P-Notes P-Repos
Reserves T-Repos P-Repos P-CNAVs
(o/n) <(o/n) (o/n) <
Liabilities
(term) (term)
(o/n)
P-Loans
…
Private Liquidity Puts
… … …
P-Loans Deposits P-Bills
(o/n)
(term) (term)
Banks
(wholesale)
Money Funds
(funding/market)

33. Hierarchy of liquidity puts:
Retail and wholesale banks
can borrow against assets or
put them to the central bank.
Retail and wholesale banks
hardly ever have to sell.
This is access to funding
as well as lender of last
resort (LoLR) liquidity.
Source: Pozsar (2014)
33(term)
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(funding/market)
T-Notes Currency T-Repos T-Repos
…
T-Bills
(term)
Reserves (o/n) <(o/n)
… …(o/n)
T-Notes T-Repos
(term)
Sovereign
(U.S. Treasury)
Money Funds
(funding/market)
Reserves T-Bills T-Repos T-CNAVs
(o/n) (o/n) (o/n) <(o/n)
…
T-Bills
Private Assets
Dealer Banks
(funding/market)
(o/n) <(o/n) (o/n) <(o/n)
<(o/n)
(term) (term)
P-Bills
Reserves Deposits P-Repos P-Repos
… … …
Deposits P-Notes P-Repos
Reserves T-Repos P-Repos P-CNAVs
Money Funds
(funding/market)
(o/n) <(o/n) (o/n)
Private Liquidity Puts
P-Loans
…
Liabilities
Banks
(funding/LoLR)
Banks
(funding/LoLR)
(term) (term)
… … …
P-Loans Deposits

34. Hierarchy of liquidity puts:
The sovereign has a monetary
backstop (usually a taboo;
often used during WWI & II
and recently the OMT, see
McCulleyand Pozsar, 2012).
Source: Pozsar (2014)
34Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(funding/market)
T-Notes Currency T-Repos T-Repos
(term)
Reserves (o/n) <(o/n)
(o/n) … …
T-Notes T-Repos
Sovereign
(monetary backtop)
Money Funds
(funding/market)
Reserves T-Bills T-Repos T-CNAVs
(o/n) (o/n) (o/n) <(o/n)
… …
T-Bills T-Bills
(term) (term)
Private Assets
Banks
(funding/LoLR)
Dealer Banks
(funding/market)
Reserves Deposits P-Repos P-Repos
(o/n) <(o/n) (o/n) <(o/n)
… … … …
P-Loans Deposits P-Notes P-Repos
Reserves T-Repos P-Repos P-CNAVs
(o/n)
(term) (term)
Banks
(funding/LoLR)
Money Funds
(funding/market)
(o/n) <(o/n) (o/n) <
… … …
P-Loans Deposits P-Bills
Private Liquidity Puts
Liabilities
(term) (term)

35. Hierarchy of liquidity puts:
LoLRand monetary backstops
are publicliquidity puts.
Source: Pozsar (2014)
35Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(funding/market)
T-Notes Currency T-Repos T-Repos
(term)
Reserves (o/n) <(o/n)
(o/n) … …
T-Notes T-Repos
Sovereign
(monetary backtop)
Money Funds
(funding/market)
Reserves T-Bills T-Repos T-CNAVs
(o/n) (o/n) (o/n) <(o/n)
… …
T-Bills T-Bills
(term) (term)
Private Assets
Banks
(funding/LoLR)
Dealer Banks
(funding/market)
Reserves Deposits P-Repos P-Repos
(o/n) <(o/n) (o/n) <(o/n)
… … … …
P-Loans Deposits P-Notes P-Repos
Reserves T-Repos P-Repos P-CNAVs
(o/n)
(term) (term)
Banks
(funding/LoLR)
Money Funds
(funding/market)
(o/n) <(o/n) (o/n) <
… … …
P-Loans Deposits P-Bills
Public Liquidity Puts Private Liquidity Puts
Liabilities
(term) (term)

36. Hierarchy of liquidity puts:
LoLRand monetary backstops
are publicliquidity puts.
But official liquidity puts
are of value only if one has
the capital to put up the
haircut at the central bank
to borrow the needed funds.
If capital is short the
hierarchy of credit puts
overrides the hierarchy
of liquidity puts.
Source: Pozsar (2014)
36Public Liquidity Puts Private Liquidity Puts
Liabilities
(term) (term)
… … …
P-Loans Deposits P-Bills
(o/n)
(term) (term)
Banks
(funding/LoLR)
Money Funds
(funding/market)
(o/n) <(o/n) (o/n) <
Reserves T-Repos P-Repos P-CNAVs
… … … …
P-Loans Deposits P-Notes P-Repos
Private Assets
Banks
(funding/LoLR)
Dealer Banks
(funding/market)
Reserves Deposits P-Repos P-Repos
(o/n) <(o/n) (o/n) <(o/n)
… …
T-Bills T-Bills
(term) (term)
Sovereign
(monetary backtop)
Money Funds
(funding/market)
Reserves T-Bills T-Repos T-CNAVs
(o/n) (o/n) (o/n) <(o/n)
(o/n)
(o/n) … …
T-Notes T-Repos
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(funding/market)
T-Notes Currency T-Repos T-Repos
(term)
Reserves (o/n) <

37. Hierarchy of credit puts:
T-Bills are guaranteed.
Source: Pozsar (2014)
37Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
T-Notes Currency T-Repos T-Repos
(term)
Reserves (o/n) <(o/n)
… …
T-Notes T-Repos
(term)
Reserves T-Bills T-Repos T-CNAVs
Sovereign
(guaranteed)
Money Funds
(o/n) (o/n) (o/n) <(o/n)
Private Assets
Banks Dealer Banks
(o/n) <
… … …
(o/n) (o/n) <(o/n)
(o/n)(o/n) <(o/n)
… …
T-Bills T-Bills
(term)
Reserves Deposits P-Repos P-Repos
Deposits P-Notes P-Repos
(term) (term)
<
… … …
Reserves T-Repos P-Repos P-CNAVs
Banks Money Funds
(o/n)
P-Loans
…
Liabilities
(term) (term)
P-Loans Deposits P-Bills
(o/n)

38. Hierarchy of credit puts:
Deposits are government
insured up to $250,000.
Source: Pozsar (2014)
38Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
T-Notes Currency T-Repos T-Repos
(term)
Reserves (o/n) <(o/n)
… …
T-Notes T-Repos
(term)
Reserves T-Bills T-Repos T-CNAVs
Sovereign
(guaranteed)
Money Funds
(o/n) (o/n) (o/n) <(o/n)
Private Assets
Banks
(insured)
Dealer Banks
(o/n) <
… … …
(o/n) (o/n) <(o/n)
(o/n)(o/n) <(o/n)
… …
T-Bills T-Bills
(term)
Reserves Deposits P-Repos P-Repos
Deposits P-Notes P-Repos
(term) (term)
<
… … …
Reserves T-Repos P-Repos P-CNAVs
Banks Money Funds
(o/n)
P-Loans
…
Liabilities
(term) (term)
P-Loans Deposits P-Bills
(o/n)

39. Hierarchy of credit puts:
Guarantees and insurance
are publiccredit puts.
Source: Pozsar (2014)
39Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
T-Notes Currency T-Repos T-Repos
Reserves (o/n) <(o/n)
… …
T-Notes T-Repos
(term)
Reserves T-Bills T-Repos T-CNAVs
Sovereign
(guaranteed)
Money Funds
(o/n) (o/n) (o/n) <(o/n)
… …
T-Bills T-Bills
(term) (term)
Private Assets
Banks
(insured)
Dealer Banks
Reserves Deposits P-Repos P-Repos
(o/n) <(o/n) (o/n) <(o/n)
… … …
Deposits P-Notes P-Repos
Reserves T-Repos P-Repos P-CNAVs
(o/n) <(o/n) (o/n) <
Liabilities
(term) (term)
(o/n)
P-Loans
…
Public Credit Puts
… … …
P-Loans Deposits P-Bills
(o/n)
(term) (term)
Banks Money Funds

40. Hierarchy of credit puts:
Repos are secured claims.
Source: Pozsar (2014)
40Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(secured)
T-Notes Currency T-Repos T-Repos
(term)
Reserves (o/n) <(o/n)
… …
T-Notes T-Repos
(term)
Reserves T-Bills T-Repos T-CNAVs
Sovereign
(guaranteed)
Money Funds
(o/n) (o/n) (o/n) <(o/n)
Private Assets
Banks
(insured)
Dealer Banks
(secured)
(o/n) <
… … …
(o/n) (o/n) <(o/n)
(o/n)(o/n) <(o/n)
… …
T-Bills T-Bills
(term)
Reserves Deposits P-Repos P-Repos
Deposits P-Notes P-Repos
(term) (term)
<
… … …
Reserves T-Repos P-Repos P-CNAVs
Banks Money Funds
(o/n)
P-Loans
…
Liabilities
(term) (term)
P-Loans Deposits P-Bills
Public Credit Puts
(o/n)

41. Hierarchy of credit puts:
Money fund shares are backed
either by secured and guaran-
teed assets, or secured and
diversified assets. They may
also have reputational puts
to their sponsor (weak puts).
Source: Pozsar (2014)
41Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(secured)
T-Notes Currency T-Repos T-Repos
(term)
Reserves (o/n) <(o/n)
… …
T-Notes T-Repos
(term)
Reserves T-Bills T-Repos T-CNAVs
Sovereign
(guaranteed)
Money Funds
(secured/guaranteed)
(o/n) (o/n) (o/n) <(o/n)
Private Assets
Banks
(insured)
Dealer Banks
(secured)
(o/n) <
… … …
(o/n) (o/n) <(o/n)
(o/n)(o/n) <(o/n)
Reserves Deposits P-Repos P-Repos
Deposits P-Notes P-Repos
(term) (term)
Reserves T-Repos P-Repos P-CNAVs
Banks
Money Funds
(secured/diversified)
Liabilities
(term) (term)
<
Public Credit Puts
… … …
P-Loans Deposits
(o/n)
P-Loans
…
P-Bills
(o/n)
… …
T-Bills T-Bills
(term)

42. Source: Pozsar (2014)
42
Hierarchy of credit puts:
Collateral, diversification
and reputational puts are
all privatecredit puts.Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(secured)
T-Notes Currency T-Repos T-Repos
Reserves (o/n) <(o/n)
… …
T-Notes T-Repos
(term)
Reserves T-Bills T-Repos T-CNAVs
Sovereign
(guaranteed)
Money Funds
(secured/guaranteed)
(o/n) (o/n) (o/n) <(o/n)
… …
T-Bills T-Bills
(term) (term)
Private Assets
Banks
(insured)
Dealer Banks
(secured)
Reserves Deposits P-Repos P-Repos
(o/n) <(o/n) (o/n) <(o/n)
… … …
Deposits P-Notes P-Repos
Reserves T-Repos P-Repos P-CNAVs
(o/n) <(o/n) (o/n) <
Liabilities
(term) (term)
(o/n)
P-Loans
…
Public Credit Puts Private Credit Puts
… … …
P-Loans Deposits P-Bills
(o/n)
(term) (term)
Banks
Money Funds
(secured/diversified)

43. Hierarchy of credit puts:
Un-insured deposits are un -
secured and un-diversified.
Source: Pozsar (2014)
43Liabilities
Banks
(un-insured)
(term)
(term)
… … …
P-Loans
<(o/n) (o/n)
Public Credit Puts Private Credit Puts
Reserves T-Repos P-Repos P-CNAVs
Money Funds
(secured/diversified)
Deposits
(term)
Deposits P-Notes P-Repos
(term) (term)
Reserves Deposits P-Repos P-Repos
… …
T-Bills T-Bills
(term)
Private Assets
Banks
(insured)
Dealer Banks
(secured)
(o/n) <
… … …
(o/n) (o/n) <(o/n)
<(o/n)
P-Bills
(o/n)
Sovereign
(guaranteed)
Money Funds
(secured/guaranteed)
(o/n) (o/n) (o/n) <(o/n)
Reserves T-Bills T-Repos T-CNAVs
T-Notes T-Repos
(term)
(o/n) <(o/n)
… …(o/n)
P-Loans
…
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(secured)
T-Notes Currency T-Repos T-Repos
Reserves

44. The hierarchy of money:
The types of assets and the
types of backstops behind
money claims yield four
basic categories of money.
Purely public, hybrid and
purely private money claims.
Source: Pozsar (2014)
44Purely
Money Funds
(government-only)
Money Funds
(prime)
Sovereign
(U.S. Treasury) (i.e. the FDIC) on all deposits < $250K.
Banks
(retail)
Private Assets
Purely public money:
Ability to tax and money creation at will
T-Bills
[1]
[2]
[3]
[4]
(o/n) <(o/n)
Deposits P-Bills
Private-public money:
Explicit liquidity puts from the Fed, and
explicit credit puts from the sovereign
…
T-Bills
T-CNAVs
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
Purely
public
Reserves (o/n) <(o/n)
… …
T-Notes T-Repos
Reserves T-Repos
(o/n)
P-Loans
…
Liabilities
Private … …
public P-Notes P-Repos
Banks
(wholesale)
Reserves T-Repos P-Repos P-CNAVs
(o/n) <(o/n) (o/n)
Public Backstops Private Backstops
(term) (term)
(term)
Reserves Deposits P-Repos P-Repos
(o/n) < (o/n) <(o/n)
Dealer Banks
(credit desk)
… …
private
…
P-Loans
(term)
(term) No official puts, not even implicitly via
the collateral involved. Peripheral money
Purely private money:
but no direct puts on the liability side.
puts via Treasury collateral involved,
Implicit official liquidity and credit
Public-private money:Public
private
<(o/n)

45. The hierarchy of money:
The types of assets and the
types of backstops behind
money claims yield four
basic categories of money.
Purely public, hybrid and
purely private money claims.
Source: Pozsar (2014)
45shadow
Liabilities
Private
Public Backstops Private Backstops
(term) (term)
… … …
P-Loans Deposits P-Bills
(o/n) <(o/n) (o/n) <(o/n)
the collateral involved. Peripheral money
Banks
(wholesale)
Money Funds
(prime)
Reserves T-Repos P-Repos P-CNAVs
P-Loans money P-Notes P-Repos
(term) No official puts, not even implicitly via
… Insured … … [4]Private shadow money:
Deposits P-Repos P-Repos
(o/n) < (o/n) <(o/n)
money (term) shadow
Implicit official liquidity and credit
Private Assets
puts via Treasury collateral involved,
Banks
(retail)
Dealer Banks
(credit desk)
but no direct puts on the liability side.
Reserves
…
Public T-Bills Public [3]Public shadow money:
Reserves
T-Bills
T-Repos T-CNAVs
(o/n) (o/n) <(o/n)
(term)
Explicit liquidity puts from the Fed, and
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
explicit credit puts from the sovereign
(i.e. the FDIC) on all deposits < $250K.
… …
T-Notes T-Repos [2]Insured money:
T-Repos
Reserves (o/n) <(o/n)
Assets
Public Assets
[1]Public money:
Central Bank
(Federal Reserve)
Dealer Banks
(government desk) Ability to tax and money creation at will
T-Notes Currency T-Repos

46. The hierarchy of money:
The types of assets and the
types of backstops behind
money claims yield four
basic categories of money.
Purely public, hybrid and
purely private money claims.
Traditional money supply…
Source: Pozsar (2014)
46shadow
[1]Public money (M0, or base money):
Central Bank
(Federal Reserve)
Dealer Banks
(government desk) Ability to tax and money creation at will
T-Notes Currency
M0
T-Repos T-Repos
Reserves (o/n) <(o/n)
Explicit liquidity puts from the Fed, and
explicit credit puts from the sovereign
(i.e. the FDIC) on all deposits < $250K.
… …
T-Notes T-Repos [2]Insured money (M1 and M2):
Money Funds
(government-only)
Assets
Public Assets
(term)
Reserves
T-Bills
T-Repos T-CNAVs
(o/n) (o/n) <(o/n)
Deposits P-Repos P-Repos
(o/n) < (o/n)
Private Assets
Reserves T-Repos
Deposits
Public shadow money:
money (term) shadow
Implicit official liquidity and credit
[3]
P-Loans
… [4]Private shadow money:
money P-Notes P-Repos
P-CNAVs
puts via Treasury collateral involved,
Banks
(retail)
Dealer Banks
(credit desk)
but no direct puts on the liability side.
Reserves
…
<(o/n)
(o/n)
the collateral involved. Peripheral money
Banks
(wholesale)
(term) No official puts, not even implicitly via
Sovereign
(U.S. Treasury)
Liabilities
<(o/n) (o/n) <(o/n)
… …
…
P-Bills
Insured M1
M2
… …
Public T-Bills Public
Money Funds
(prime)
P-Repos
Public Backstops Private Backstops
(term) (term)
P-Loans Private

47. The hierarchy of money:
The types of assets and the
types of backstops behind
money claims yield four
basic categories of money.
Purely public, hybrid and
purely private money claims.
Traditional money supply
vs. shadow money supply.
Source: Pozsar(2014)
47shadow
P-Loans
…
Liabilities
M1
M2
M3
M3
M3
… … …
Reserves T-Repos P-Repos P-CNAVs
(o/n) <(o/n) (o/n) <(o/n)
Public Backstops Private Backstops
(term) (term)
P-Loans Deposits P-Bills Private
money P-Notes P-Repos
No official puts, not even implicitly via
the collateral involved. Peripheral money
(term)
Money Funds
(prime)
Assets
Public Assets
(term)
Explicit liquidity puts from the Fed, and
explicit credit puts from the sovereign
(i.e. the FDIC) on all deposits < $250K.
… …
T-Notes T-Repos [2]Insured money (M1 and M2):
Reserves
T-Bills
T-Repos
(o/n)
Banks
(wholesale)
Insured … … [4]Private shadow money (M3):
< (o/n) <(o/n)
money shadow
Private Assets
[1]Public money (M0, or base money):
Central Bank
(Federal Reserve)
Dealer Banks
(government desk) Ability to tax and money creation at will
T-Notes Currency T-Repos
(term)
T-Repos
Reserves (o/n) <(o/n)
M0
…
Public T-Bills Public [3]Public shadow money (M3):
P-Repos
T-CNAVs
(o/n) (o/n) <(o/n)
Implicit official liquidity and credit
puts via Treasury collateral involved,
Banks
(retail)
Dealer Banks
(credit desk)
but no direct puts on the liability side.
Reserves Deposits P-Repos
Money Funds
(government-only)
Sovereign
(U.S. Treasury)

48. The hierarchy of money:
The types of assets and the
types of backstops behind
money claims yield four
basic categories of money.
Purely public, hybrid and
purely private money claims.
Traditional money supply
vs. shadow money supply.
The shadow banking system…
Source: Pozsar (2014)
48shadow
Money Funds
(government-only)
Money Funds
(prime)
Sovereign
(U.S. Treasury)
[1]Public money (M0, or base money):
Central Bank
(Federal Reserve)
Dealer Banks
(government desk) Ability to tax and money creation at will
T-Notes Currency
M0
T-Repos T-Repos
Reserves (o/n) <(o/n)
(term) shadow
Implicit official liquidity and credit
…
Public
Assets
Public Assets
(term)
Explicit liquidity puts from the Fed, and
explicit credit puts from the sovereign
(i.e. the FDIC) on all deposits < $250K.
… …
T-Notes T-Repos [2]Insured money (M1 and M2):
Reserves
T-Bills
T-Repos T-CNAVs
(o/n) (o/n) <(o/n)
[3]Public shadow money (M3):
money
T-Bills Public
M3
Private Assets
puts via Treasury collateral involved,
Banks
(retail)
Dealer Banks
(credit desk)
but no direct puts on the liability side.
Reserves Deposits P-Repos P-Repos
(o/n) < (o/n) <(o/n)
… Insured M1
M2
… …
(term) No official puts, not even implicitly via
the collateral involved. Peripheral money
Banks
(wholesale)
[4]Private shadow money (M3):
P-Loans money P-Notes P-Repos
(o/n)
… … …
P-Loans Deposits P-Bills
Reserves T-Repos
M3
P-Repos P-CNAVs
(o/n) <(o/n) (o/n) <
Liabilities
Public Backstops Private Backstops
M3
(term) (term)
Private

49. The hierarchy of money:
The types of assets and the
types of backstops behind
money claims yield four
basic categories of money.
Purely public, hybrid and
purely private money claims.
Traditional money supply
vs. shadow money supply.
The shadow banking system…
[1]Public-private subsystem
(public collateral, maturity
and liquidity transformation
see Carney and Panetta, 2011)
Source: Pozsar (2014)
49shadow
Liabilities
Public Backstops Private Backstops
M3
(term) (term)
Private
(o/n)
… … …
P-Loans Deposits P-Bills
Reserves T-Repos
M3
P-Repos P-CNAVs
(o/n) <(o/n) (o/n) <
No official puts, not even implicitly via
the collateral involved. Peripheral money
Banks
(wholesale)
[4]Private shadow money (M3):
P-Loans money P-Notes P-Repos
T-Bills Public
M3
Private Assets
puts via Treasury collateral involved,
Banks
(retail)
Dealer Banks
(credit desk)
but no direct puts on the liability side.
Reserves Deposits P-Repos P-Repos
(o/n) < (o/n) <(o/n)
… Insured M1
M2
… …
(term)
Assets
Public Assets
(term)
Explicit liquidity puts from the Fed, and
explicit credit puts from the sovereign
(i.e. the FDIC) on all deposits < $250K.
… …
T-Notes T-Repos [2]Insured money (M1 and M2):
Reserves
T-Bills
T-Repos T-CNAVs
(o/n) (o/n) <(o/n)
[3]Public shadow money (M3):
money
Money Funds
(government-only)
Money Funds
(prime)
Sovereign
(U.S. Treasury)
[1]Public money (M0, or base money):
Central Bank
(Federal Reserve)
Dealer Banks
(government desk) Ability to tax and money creation at will
T-Notes Currency
M0
T-Repos T-Repos
Reserves (o/n) <(o/n)
(term) shadow
Implicit official liquidity and credit
…
Public

50. The hierarchy of money:
The types of assets and the
types of backstops behind
money claims yield four
basic categories of money.
Purely public, hybrid and
purely private money claims.
Traditional money supply
vs. shadow money supply.
The shadow banking system…
[1]Public-private subsystem
(public collateral, maturity
and liquidity transformation
see Carney and Panetta, 2011)
[2]Purely private subsystem
(private collateral, credit,
maturity and liquidity trafo,
see Pozsar et al, 2010)
Source: Pozsar (2014)
50shadow
Liabilities
Public Backstops Private Backstops
M3
(term) (term)
Private
(o/n)
… … …
P-Loans Deposits P-Bills
Reserves T-Repos
M3
P-Repos P-CNAVs
(o/n) <(o/n) (o/n) <
No official puts, not even implicitly via
the collateral involved. Peripheral money
Banks
(wholesale)
[4]Private shadow money (M3):
P-Loans money P-Notes P-Repos
T-Bills Public
M3
Private Assets
puts via Treasury collateral involved,
Banks
(retail)
Dealer Banks
(credit desk)
but no direct puts on the liability side.
Reserves Deposits P-Repos P-Repos
(o/n) < (o/n) <(o/n)
… Insured M1
M2
… …
(term)
Assets
Public Assets
(term)
Explicit liquidity puts from the Fed, and
explicit credit puts from the sovereign
(i.e. the FDIC) on all deposits < $250K.
… …
T-Notes T-Repos [2]Insured money (M1 and M2):
Reserves
T-Bills
T-Repos T-CNAVs
(o/n) (o/n) <(o/n)
[3]Public shadow money (M3):
money
Money Funds
(government-only)
Money Funds
(prime)
Sovereign
(U.S. Treasury)
[1]Public money (M0, or base money):
Central Bank
(Federal Reserve)
Dealer Banks
(government desk) Ability to tax and money creation at will
T-Notes Currency
M0
T-Repos T-Repos
Reserves (o/n) <(o/n)
(term) shadow
Implicit official liquidity and credit
…
Public

51. Enter the Fed’s RRPs:
Recall that only banks and
the sovereign can have re -
serve accounts at the Fed.
For dealers, money is o/n
T-Repos with large banks.
For money funds, money is
o/n T-Repos with dealers.
No longer…
Source: Pozsar (2014)
51shadow
Liabilities
Public Backstops Private Backstops
M3
(term) (term)
Private
(o/n)
… … …
P-Loans Deposits P-Bills
Reserves T-Repos
M3
P-Repos P-CNAVs
(o/n) <(o/n) (o/n) <
Banks
(wholesale)
P-Loans money P-Notes P-Repos
T-Bills Public
M3
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits P-Repos P-Repos
(o/n) < (o/n) <(o/n)
… Insured M1
M2
… …
(term)
Assets
Public Assets
(term)
… …
T-Notes T-Repos
Reserves
T-Bills
T-Repos T-CNAVs
(o/n) (o/n) <(o/n)
money
Money Funds
(government-only)
Money Funds
(prime)
Sovereign
(U.S. Treasury)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency
M0
T-Repos T-Repos
Reserves (o/n) <(o/n)
(term) shadow
…
Public

52. Enter the Fed’s RRPs:
RRPs effectively give money
funds and dealers, the core
entities of the shadow ban -
king system, access to a re -
serve account at the Fed for
the very first time in U.S.
monetary history. Do appre-
ciatethe evolutionarysig-
nificanceof this step and
look beyond the view that
the only significance of
RRPs is that they will help
the Fed control short rates.
RRPs are likely a station,
not a destination (more on
this shortly in Part II).
Source: Pozsar (2014)
52shadow
M0
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes RRP RRPs T-Repos
(o/n) (o/n) <(o/n)
Assets
Public Assets
Reserves (term)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
… …
Currency T-Notes T-Repos
Reserves
T-Bills
RRPs T-CNAVs
(o/n) (o/n) <(o/n)
money (term) shadow
…
Public T-Bills Public
M3
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits RRPs P-Repos
(o/n) < (o/n) <(o/n)
… Insured M1
M2
… …
(term)
Banks
(wholesale)
Money Funds
(prime)
P-Loans money P-Notes P-Repos
M3
(term) (term)
(o/n)
… … …
P-Loans Deposits P-Bills
T-Repos
(o/n)
Reserves
(o/n)
M3
RRPs P-CNAVs
< (o/n) <
Private
Liabilities
Public Backstops Private Backstops

53. 0
500
1,000
1,500
2,000
2,500
3,000
3,500
Public Money Insured Money Private Shadow Money Public Shadow Money
Q3-13
Reserves Reverse Repos T-Bills Demand Deposits Dealer Repos [o/n] Securities Loaned CNAVs Overnight money claims by type:
$ billions
Source: Federal Reserve Z.1 and H.8, New York Fed (FR 2004), FDIC, U.S. Treasury
53

54. 0
1,000
2,000
3,000
4,000
5,000
6,000
Insured Money Public Money Private Shadow Money Public Shadow Money
Q3-13
T-BillsT-Notes w/ RM < 1 yr. Small TDs and savings deposits Large TDsDealer Repos [term] Securities Loaned Term money claims by type:
$ billions
Source: Federal Reserve Z.1 and H.8, New York Fed (FR 2004) and author’s calculations
54

55. 2. The Hierarchy of Access .
55
3. The Hierarchy of Uses. .
4. The Dealer Eco-System.
1. The Hierarchy of Money.
5. The Macro Perspective.
6. Policy Implications. ..

56. Retail cash investors:
Mom and pop depositors.
Holdings of cash and
insured bank deposits.
Source: Pozsar (2014)
56Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Money Funds
(prime)
(term)
Public Backstops Private Backstops
…
P-Loans Deposits P-Bills
(o/n)
… …
(term)
Banks
(wholesale)
Deposits P-Notes
Liabilities
(term) (term)
P-Repos
(o/n) <(o/n) (o/n) <
Reserves T-Repos P-Repos P-CNAVs
(term)
Private Assets
Banks
(insured)
Dealer Banks
(credit desk)
Reserves Deposits P-Repos P-Repos
(o/n) <(o/n) (o/n) <(o/n)
… … …
…
T-Bills T-Bills
(term) (term)
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
Reserves (o/n) <(o/n)
Reserves T-Bills T-Repos
(o/n)
P-Loans
…
… …
T-CNAVs
T-Notes T-Repos
(o/n) (o/n) (o/n) <(o/n)
…

57. Institutional cash pools:
At least $10bn in cash AuM
(see Pozsar, 2011 and 2012).
Cash portfolio managers (PM).
Mandate: “Do not lose”.
Restricted to invest mostly
in money market instruments.
Source: Pozsar (2014)
57(term)
<
Dealer Banks
(credit desk)
Reserves Deposits
(o/n) (o/n)
Reserves T-Repos P-Repos P-CNAVs
(o/n) (o/n) (o/n) (o/n)
(term)
(term)
(o/n)
Sovereign
(U.S. Treasury)
Money Funds
(prime)
Money Funds
(government-only)
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos
Reserves (o/n) (o/n)
…
<
…
Reserves T-Bills T-Repos T-CNAVs
T-Repos
Private Assets
Banks
(retail)
…
Deposits P-Bills
Public Backstops Private Backstops
(o/n) (o/n) (o/n) (o/n)
…
T-Bills
(term)
< <
…
< <
Liabilities
T-Notes
T-Bills
P-Notes
(term)
(term) (term)
… …
P-Loans
… … …
Deposits P-Repos
Banks
(wholesale)
P-Repos P-Repos
(o/n)
(o/n)
P-Loans
…

58. Institutional cash pools:
At least $10bn in cash AuM
(see Pozsar, 2011 and 2012).
Cash portfolio managers (PM).
Mandate: “Do not lose”.
Restricted to invest mostly
in money market instruments.
[1]FX reserve managers’
liquidity tranches.
Source: Pozsar (2014)
58…
"Cash"
(term)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"
…Reserves (o/n) <(o/n) (o/n)
(o/n) … …
(o/n)
T-Notes T-Repos Equity
(term) (permanent)
(o/n)(o/n)
… …
T-Bills T-Bills
Reserves T-Bills T-Repos T-CNAVs
<(o/n)
(term) (term)
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits P-Repos P-Repos
(o/n) <(o/n) (o/n) <
P-Loans Deposits P-Notes P-Repos
(term) (term)
(o/n)
… … … …
Reserves T-Repos P-Repos P-CNAVs
… … …
(o/n) <(o/n) (o/n) <(o/n)
Banks
(wholesale)
Public Backstops Private Backstops
Liabilities
Money Funds
(prime)
(term) (term)
P-Loans Deposits P-Bills

59. Institutional cash pools:
At least $10bn in cash AuM
(see Pozsar, 2011 and 2012).
Cash portfolio managers (PM).
Mandate: “Do not lose”.
Restricted to invest mostly
in money market instruments.
[1]FX reserve managers’
liquidity tranches.
[2]Global corporate cash
balances (on and offshore).
Source: Pozsar (2014)
59…
"Cash"
(term)
…
"Cash"
(term)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"
…Reserves (o/n) <(o/n) (o/n)
(o/n) … …
…(o/n)
T-Notes T-Repos Equity
(term) (permanent)
Cash PM
(corporations)
(o/n) (o/n)
"Cash"
(o/n)
… …
T-Bills T-Bills
Reserves T-Bills T-Repos T-CNAVs
<(o/n)
Equity
(term) (term) (permanent)
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Reserves Deposits P-Repos P-Repos
(o/n) <(o/n) (o/n) <
P-Loans Deposits P-Notes P-Repos
(term) (term)
(o/n)
… … … …
Reserves T-Repos P-Repos P-CNAVs
… … …
(o/n) <(o/n) (o/n) <(o/n)
Banks
(wholesale)
Public Backstops Private Backstops
Liabilities
Money Funds
(prime)
(term) (term)
P-Loans Deposits P-Bills

60. Institutional cash pools:
At least $10bn in cash AuM
(see Pozsar, 2011 and 2012).
Cash portfolio managers (PM).
Mandate: “Do not lose”.
Restricted to invest mostly
in money market instruments.
[1]FX reserve managers’
liquidity tranches.
[2]Global corporate cash
balances (on and offshore).
[3]Institutional investors’
pooled cash balances.
Source: Pozsar (2014)
60…
"Cash"
(term)
…
"Cash"
(term)
…
"Cash"
(term)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"
…Reserves (o/n) <(o/n) (o/n)
(o/n) … …
…(o/n)
T-Notes T-Repos Equity
(term) (permanent)
Cash PM
(corporations)
(o/n) (o/n)
"Cash"
(o/n)
… …
T-Bills T-Bills
Reserves T-Bills T-Repos T-CNAVs
<(o/n)
Equity
(term) (term) (permanent)
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits P-Repos P-Repos "Cash"
(o/n) <(o/n) (o/n) <
P-Loans Deposits P-Notes P-Repos
(term) (term)
(o/n) (o/n)
… … … …
…
Equity
(temporary)
Reserves T-Repos P-Repos P-CNAVs
… … …
(o/n) <(o/n) (o/n) <(o/n)
Banks
(wholesale)
Public Backstops Private Backstops
Liabilities
Money Funds
(prime)
(term) (term)
P-Loans Deposits P-Bills

61. Institutional cash pools:
At least $10bn in cash AuM
(see Pozsar, 2011 and 2012).
Cash portfolio managers (PM).
Mandate: “Do not lose”.
Restricted to invest mostly
in money market instruments.
[1]FX reserve managers’
liquidity tranches.
[2]Global corporate cash
balances (on and offshore).
[3]Institutional investors’
pooled cash balances.
[4]Seclenders’ cash colla-
teralreinvestment accounts .
Source: Pozsar(2014)
61…
"Cash"
(term)
…
"Cash"
(term)
…
"Cash"
(term)
…
"Cash"
(term)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"
…Reserves (o/n) <(o/n) (o/n)
(o/n) … …
…(o/n)
T-Notes T-Repos Equity
(term) (permanent)
Cash PM
(corporations)
(o/n) (o/n)
"Cash"
(o/n)
… …
T-Bills T-Bills
Reserves T-Bills T-Repos T-CNAVs
<(o/n)
Equity
(term) (term) (permanent)
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits P-Repos P-Repos "Cash"
(o/n) <(o/n) (o/n) <
P-Loans Deposits P-Notes P-Repos
(collateral)
(term) (term)
(o/n) (o/n)
… … … …
…
Equity
(temporary)
Public Backstops Private Backstops
Liabilities
Money Funds
(prime)
Cash PM
(seclenders)
Reserves T-Repos P-Repos P-CNAVs "Cash"
(o/n)
… … …
(o/n) <(o/n) (o/n) <(o/n)
Cash
(term) (term)
P-Loans Deposits P-Bills
Banks
(wholesale)

62. 0
1,000
2,000
3,000
4,000
5,000
6,000
1997 2000 07Q2 13Q3
Reserve managers Corporations Institutional Investors Securities lenders Institutional cash pools:
$ billions
Source: Federal Reserve Z.1, BIS, ICI and author’s calculations
62

63. Tough to be safe on scale:
[1]Cash pools do not have
access to M0, M1 or M2.
Source: Pozsar (2014)
63(temporary)
Equity
Equity
P-Loans
…
(permanent)
(term)
(permanent)
(term)
…
(term)
Banks
(retail)
Dealer Banks
(credit desk)
(o/n)
(term)
Equity
…
…
Money Funds
(government-only)
Reserves P-Repos P-Repos
P-Bills
(o/n)
"Cash"
(o/n)
Reserves
Public Backstops Private Backstops
P-CNAVs "Cash"
Liabilities
…
"Cash"
…
"Cash"
…
"Cash"
…
(term) (term)
…
…
…
T-Notes
Banks
(wholesale)
P-Loans Deposits
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes T-Repos T-Repos "Cash"
(o/n)
Cash PM
(corporations)
Reserves T-Repos T-CNAVs "Cash"
(o/n) (o/n)
…
<
(o/n)
Private Assets
Cash PM
(asset managers)
…
P-Notes
<
P-Repos
(term)
(term)
Deposits
(insured)
(collateral)
Insured
money
Cash PM
(seclenders)
T-Repos P-Repos
…
(o/n) (o/n)
"Cash"
Money Funds
(prime)
…
Cash
…
[1]
[1]
…
< (o/n) <(o/n)
T-Bills
T-Repos
(term)
(o/n) <(o/n)
(o/n) <(o/n)
Sovereign
(U.S. Treasury)
Currency
Reserves
T-Bills
Public
money
(o/n)

64. Source: Pozsar(2014)
64
Tough to be safe on scale:
[1]Cash pools do not have
access to M0, M1 or M2…
…for cash pools, money
begins where M2 ends .(temporary)
Equity
Equity
P-Loans
…
(permanent)
(term)
(permanent)
(term)
…
(term)
Banks
(retail)
Dealer Banks
(credit desk)
(o/n)
(term)
Equity
…
…
Money Funds
(government-only)
Reserves P-Repos P-Repos
P-Bills
(o/n)
"Cash"
(o/n)
Reserves
Public Backstops Private Backstops
P-CNAVs "Cash"
Liabilities
…
"Cash"
…
"Cash"
…
"Cash"
…
(term) (term)
…
…
…
T-Notes
Banks
(wholesale)
P-Loans Deposits
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes T-Repos T-Repos "Cash"
(o/n)
Cash PM
(corporations)
Reserves T-Repos T-CNAVs "Cash"
(o/n) (o/n)
…
<
(o/n)
Private Assets
Cash PM
(asset managers)
…
P-Notes
<
P-Repos
(term)
(term)
Deposits
(insured)
(collateral)
Insured
money
Cash PM
(seclenders)
T-Repos P-Repos
…
(o/n) (o/n)
"Cash"
Money Funds
(prime)
…
Cash
…
[1]
[1]
…
< (o/n) <(o/n)
T-Bills
T-Repos
(term)
(o/n) <(o/n)
(o/n) <(o/n)
Sovereign
(U.S. Treasury)
Currency
Reserves
T-Bills
Public
money
(o/n)

65. Source: Pozsar(2014)
65
Tough to be safe on scale:
[1]Cash pools do not have
access to M0, M1 or M2.
For cash pools, money
begins where M2 ends.
[2]Cash pools cannot get
enough U.S. Treasury bills…[2]
Public Backstops Private Backstops
Liabilities
(term) (term) (term)
P-Loans Deposits P-Bills "Cash"
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Reserves T-Repos P-Repos P-CNAVs "Cash" Cash
Equity
(term) (term) (temporary)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
… … …
P-Loans Insured
money
P-Notes P-Repos "Cash"
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Private Assets
[1]
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(insured)
P-Repos P-Repos
Public
money
T-Bills "Cash" Equity
(term) (term) (permanent)
(o/n) <(o/n) (o/n)
… …
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Reserves T-Bills
(no t eno ugh)
T-Repos T-CNAVs "Cash"
…(o/n)
…
T-Notes T-Repos "Cash" Equity
(term) (term) (permanent)
T-Repos "Cash"
…(o/n) <(o/n) (o/n)
… …
Assets
Public Assets
[1]
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency
Reserves
T-Repos

66. Source: Pozsar(2014)
66
Tough to be safe on scale:
[1]Cash pools do not have
access to M0, M1 or M2.
For cash pools, money
begins where M2 ends.
[2]Cash pools cannot get
enough U.S. Treasury bills…
…inelastic supply of
public money claims.[2]
Public Backstops Private Backstops
Liabilities
(term) (term) (term)
P-Loans Deposits P-Bills "Cash"
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Reserves T-Repos P-Repos P-CNAVs "Cash" Cash
Equity
(term) (term) (temporary)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
… … …
P-Loans Insured
money
P-Notes P-Repos "Cash"
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Private Assets
[1]
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(insured)
P-Repos P-Repos
Public
money
T-Bills "Cash" Equity
(term) (term) (permanent)
(o/n) <(o/n) (o/n)
… …
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Reserves T-Bills
(no t eno ugh)
T-Repos T-CNAVs "Cash"
…(o/n)
…
T-Notes T-Repos "Cash" Equity
(term) (term) (permanent)
T-Repos "Cash"
…(o/n) <(o/n) (o/n)
… …
Assets
Public Assets
[1]
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency
Reserves
T-Repos

67. Source: Pozsar (2014)
67
Tough to be safe on scale:
[1]Cash pools do not have
access to M0, M1 or M2.
For cash pools, money
begins where M2 ends.
[2]Cash pools cannot get
enough U.S. Treasury bills…
…inelastic supply of
public money claims.
[3]Cash pools have limits
on un-secured credit risk…[3]
Public Backstops Private Backstops
Liabilities
(term) (term)
Deposits
(uninsured)
P-Loans P-Bills "Cash"
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Reserves T-Repos P-Repos P-CNAVs "Cash" Cash
Equity
(term) (term) (temporary)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
… … …
P-Loans Insured
money
P-Notes P-Repos "Cash"
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Private Assets
[1]
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(insured)
P-Repos P-Repos
Public
money
T-Bills "Cash" Equity
(term) (term) (permanent)
(o/n) (o/n) <(o/n) (o/n)
… …
[2]
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Reserves T-Bills
(no t eno ugh)
T-Repos T-CNAVs "Cash"
…
…
T-Notes T-Repos "Cash" Equity
(term) (term) (permanent)
T-Repos "Cash"
…(o/n) <(o/n) (o/n)
… …
Assets
Public Assets
[1]
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency
Reserves
T-Repos

68. Source: Pozsar (2014)
68
Tough to be safe on scale:
[1]Cash pools do not have
access to M0, M1 or M2.
For cash pools, money
begins where M2 ends.
[2]Cash pools cannot get
enough U.S. Treasury bills…
…inelastic supply of
public money claims.
[3]Cash pools have limits
on un-secured credit risk…
…inelastic demand for
un-insured bank deposits.[3]
Public Backstops Private Backstops
Liabilities
(term) (term)
Deposits
(uninsured)
P-Loans P-Bills "Cash"
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Reserves T-Repos P-Repos P-CNAVs "Cash" Cash
Equity
(term) (term) (temporary)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
… … …
P-Loans Insured
money
P-Notes P-Repos "Cash"
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Private Assets
[1]
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(insured)
P-Repos P-Repos
Public
money
T-Bills "Cash" Equity
(term) (term) (permanent)
(o/n) (o/n) <(o/n) (o/n)
… …
[2]
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Reserves T-Bills
(no t eno ugh)
T-Repos T-CNAVs "Cash"
…
…
T-Notes T-Repos "Cash" Equity
(term) (term) (permanent)
T-Repos "Cash"
…(o/n) <(o/n) (o/n)
… …
Assets
Public Assets
[1]
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency
Reserves
T-Repos

69. Tough to be safe on scale:
[1]Cash pools do not have
access to M0, M1 or M2.
For cash pools, money
begins where M2 ends.
[2]Cash pools cannot get
enough U.S. Treasury bills…
…inelastic supply of
public money claims.
[3]Cash pools have limits
on un-secured credit risk…
…inelastic demand for
un-insured bank deposits .
[4]Cash pools opt for
second best alternatives…
Source: Pozsar (2014)
69shadow
Liabilities
[4]
[4]
Public Backstops Private Backstops
P-Loans Deposits
(uninsured)
P-Bills Private "Cash"
(term) (term)
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
Reserves T-Repos P-Repos P-CNAVs "Cash" Cash
Equity
(term) (term) (temporary)
[3]
… … …
P-Loans Insured
money
P-Notes P-Repos "Cash"
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Private Assets
[1]
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(insured)
P-Repos P-Repos
Public
money
T-Bills Public "Cash" Equity
(term) shadow (term) (permanent)
(o/n) (o/n) <(o/n) (o/n)
… …
[2]
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Reserves T-Bills
(no t eno ugh)
T-Repos T-CNAVs "Cash"
…
…
T-Notes T-Repos "Cash" Equity
(term) (term) (permanent)
T-Repos "Cash"
…(o/n) <(o/n) (o/n)
… …
Assets
Public Assets
[1]
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency
Reserves
T-Repos

70. Tough to be safe on scale:
[1]Cash pools do not have
access to M0, M1 or M2.
For cash pools, money
begins where M2 ends.
[2]Cash pools cannot get
enough U.S. Treasury bills…
…inelastic supply of
public money claims.
[3]Cash pools have limits
on un-secured credit risk…
…inelastic demand for
un-insured bank deposits .
[4]Cash pools opt for
second best alternatives…
…the elastic middle of
shadow money claims.
Source: Pozsar(2014)
70shadow
Liabilities
[4]
[4]
Public Backstops Private Backstops
P-Loans Deposits
(uninsured)
P-Bills Private "Cash"
(term) (term)
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
Reserves T-Repos P-Repos P-CNAVs "Cash" Cash
Equity
(term) (term) (temporary)
[3]
… … …
P-Loans Insured
money
P-Notes P-Repos "Cash"
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Private Assets
[1]
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(insured)
P-Repos P-Repos
Public
money
T-Bills Public "Cash" Equity
(term) shadow (term) (permanent)
(o/n) (o/n) <(o/n) (o/n)
… …
[2]
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Reserves T-Bills
(no t eno ugh)
T-Repos T-CNAVs "Cash"
…
…
T-Notes T-Repos "Cash" Equity
(term) (term) (permanent)
T-Repos "Cash"
…(o/n) <(o/n) (o/n)
… …
Assets
Public Assets
[1]
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency
Reserves
T-Repos

71. Search for safety vs. yield:
Search for yield begins
where the matrix ends…
Onshore:
[5] CD
[6]CP
Source: Pozsar (2014)
71shadow
Liabilities
[4]
[4]
Public Backstops Private Backstops
P-Loans Deposits
(uninsured)
P-Bills Private "Cash"
(term) (term)
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
Reserves T-Repos P-Repos P-CNAVs "Cash" Cash
Equity
(term) (term) (temporary)
[3]
… … …
P-Loans Insured
money
P-Notes P-Repos "Cash"
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Private Assets
[1]
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(insured)
P-Repos P-Repos
Public
money
T-Bills Public "Cash" Equity
(term) shadow (term) (permanent)
(o/n) (o/n) <(o/n) (o/n)
… …
[2]
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Reserves T-Bills
(no t eno ugh)
T-Repos T-CNAVs "Cash"
…
…
T-Notes T-Repos "Cash" Equity
(term) (term) (permanent)
T-Repos "Cash"
…(o/n) <(o/n) (o/n)
… …
Assets
Public Assets
[1]
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency
Reserves
T-Repos

72. Search for safety vs. yield:
Search for yield begins
where the matrix ends…
Onshore: Offshore:
[5] CD [7] ECD
[6]CP [8] ECP
Source: Pozsar (2014)
72shadow
Liabilities
[4]
[4]
Public Backstops Private Backstops
P-Loans Deposits
(uninsured)
P-Bills Private "Cash"
(term) (term)
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
Reserves T-Repos P-Repos P-CNAVs "Cash" Cash
Equity
(term) (term) (temporary)
[3]
… … …
P-Loans Insured
money
P-Notes P-Repos "Cash"
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Private Assets
[1]
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(insured)
P-Repos P-Repos
Public
money
T-Bills Public "Cash" Equity
(term) shadow (term) (permanent)
(o/n) (o/n) <(o/n) (o/n)
… …
[2]
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Reserves T-Bills
(no t eno ugh)
T-Repos T-CNAVs "Cash"
…
…
T-Notes T-Repos "Cash" Equity
(term) (term) (permanent)
T-Repos "Cash"
…(o/n) <(o/n) (o/n)
… …
Assets
Public Assets
[1]
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency
Reserves
T-Repos

73. RRPs and cash pools:
Unlike individuals, banks
and now shadow banks, cash
pools still do nothave a
direct access to the Fed’s
liabilities (the ultimate
form of money, and the sa-
fest of safe assets around).
That is, corporations and
asset managers are still
constrained to holding
mostly shadow money claims.
But the quality of shadow
money claims is now much
better because they are
now backed (at least in
part) by something better
(RRPs) than ever before.
Source: Pozsar (2014)
73shadow
Public Backstops Private Backstops
Liabilities
P-Loans Deposits
(uninsured)
P-Bills Private "Cash"
(term) (term)
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
Reserves T-Repos RRPs P-CNAVs "Cash" Cash
Equity
(term) (term) (temporary)
[3]
… … … …
P-Loans Insured
money
P-Notes P-Repos "Cash"
P-Repos "Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
Private Assets
[1] [4]
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(insured)
RRPs
…
Public
money
T-Bills Public "Cash" Equity
(term) shadow (term) (permanent)
RRPs T-CNAVs "Cash"
…(o/n) (o/n) <(o/n) (o/n)
…
Equity
(term) (term) (permanent)
[2]
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Currency
Reserves
(o/n)
… … …
T-Notes T-Repos "Cash"
Cash PM
(reserve managers)
T-Notes RRPs
(o/n)
RRPs T-Repos "Cash"
…(o/n)
Assets
Public Assets
[1] [4]
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
<(o/n)
Reserves T-Bills
(no t eno ugh)

74. RRPs and cash pools:
Consider RRPs potential as
a macro-prudential tool.
Required minimum RRP balan-
cesfor shadow banks could
become equivalent to what
minimum reserve requirements
are for traditional banks.
The implementation of mini -
mum RRP balances would in -
crease the safety of shadow
money claims further still.
This could be an evolution -
arystep toward Mehrling’s
“dealer of last resort” in
Bagehot 21
st
century sense.
Source: Pozsar (2014)
74shadow
Public Backstops Private Backstops
Liabilities
P-Loans Deposits
(uninsured)
P-Bills Private "Cash"
(term) (term)
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
Reserves T-Repos RRPs P-CNAVs "Cash" Cash
Equity
(term) (term) (temporary)
[3]
… … … …
P-Loans Insured
money
P-Notes P-Repos "Cash"
P-Repos "Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
Private Assets
[1] [4]
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(insured)
RRPs
…
Public
money
T-Bills Public "Cash" Equity
(term) shadow (term) (permanent)
RRPs T-CNAVs "Cash"
…(o/n) (o/n) <(o/n) (o/n)
…
Equity
(term) (term) (permanent)
[2]
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Currency
Reserves
(o/n)
… … …
T-Notes T-Repos "Cash"
Cash PM
(reserve managers)
T-Notes RRPs
(o/n)
RRPs T-Repos "Cash"
…(o/n)
Assets
Public Assets
[1] [4]
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
<(o/n)
Reserves T-Bills
(no t eno ugh)

75. 0
500
1,000
1,500
2,000
2,500
Private Shadow Money Public Shadow Money Insured Money Public Money
Q3-13
Demand Deposits Dealer Repos [o/n] Securities Loaned CNAVs [Institutional Class] T-Bills Cash pools’ access to overnight money:
$ billions
75
Source: Haver, Federal Reserve Board, Federal Reserve Bank of New York, FDIC

76. 0
500
1,000
1,500
2,000
2,500
Private Shadow Money Public Shadow Money Insured Money Public Money
Q3-13
Demand Deposits Dealer Repos [o/n] Securities Loaned CNAVs [Institutional Class] T-Bills Not all un-insured demand deposits belong to cash pools:
$ billions
76
Source: Haver, Federal Reserve Board, Federal Reserve Bank of New York, FDIC
Banks with $50 < assets < $100 billion:
4,200 accts., each $2.2 million on avg.
Banks with assets of over $100 billion:
24,800 accts, each $2.9 million on avg.

77. 0
500
1,000
1,500
2,000
2,500
Public Money Private Shadow Money Public Shadow Money Insured Money
Q3-13
T-Bills T-Notes w/ RM < 1 yr. Savings and Small TDs Large TDs Dealer Repos [term] Secs. Loaned Cash pools’ access to term money:
$ billions
77
Source: Haver, Federal Reserve Board, Federal Reserve Bank of New York

78. 0
500
1,000
1,500
2,000
2,500
Public Money Private Shadow Money Public Shadow Money Insured Money
Q3-13
T-Bills T-Notes w/ RM < 1 yr. Savings and Small TDs Large TDs Dealer Repos [term] Secs. Loaned Not all large time deposits belong to cash pools:
$ billions
78
Source: Haver, Federal Reserve Board, Federal Reserve Bank of New York
We do not know what share of large time deposits
belong to cash pools vs. SMEs and the wealthy.

79. 2. The Hierarchy of Access.
79
3. The Hierarchy of Uses ..
4. The Dealer Eco-System.
1. The Hierarchy of Money.
5. The Macro Perspective.
6. Policy Implications. ..

80. Source: Pozsar (2014)
80
Money creation:
Retail banks create money
and credit ex nihilo(see
for example Turner, 2013).
Clear links to the real
economy through loans.Public Backstops Private Backstops
Liabilities
(local) (term) (term)
P-Repos P-CNAVs "Cash"
(o/n) <(o/n) (o/n)
(term)
P-Loans Deposits P-Bills "Cash"
<(o/n) (o/n)
… … … …
(collateral)
Cash
"Cash"
(term)
Banks
(wholesale)
…
P-Loans
(local)
Equity
(temporary)
…
Reserves Deposit
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(o/n)
P-Repos P-Repos "Cash"
(term)
Money Funds
(prime)
Cash PM
(seclenders)
…
… … … …
Deposits
(term)
P-Notes P-Repos
Equity
(term) (term) (permanent)
(o/n) < (o/n) <(o/n) (o/n)
…(o/n) (o/n) <(o/n) (o/n)
Reserves T-Bills
(o/n)
T-Repos T-CNAVs "Cash"
Assets
Public Assets
… …
Private Assets
…
T-Bills
(term)
T-Bills "Cash"
(term) (term) (permanent)
Money Funds
(government-only)
Cash PM
(corporations)
Sovereign
(U.S. Treasury)
(o/n)
… … …
T-Notes T-Repos "Cash" Equity
Cash PM
(reserve managers)
T-Notes Currency
Reserves
T-Repos T-Repos "Cash"
…(o/n) <
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
(o/n)
(o/n)

81. T-Notes Currency
Reserves
T-Repos T-Repos "Cash"
…(o/n) <(o/n) (o/n)
(o/n) … … …
T-Notes T-Repos "Cash"
Cash PM
(reserve managers)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Reserves T-Bills
(o/n)
T-Repos T-CNAVs "Cash"
Equity
(term) (term) (permanent)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Assets
Public Assets
T-Bills
(term)
T-Bills "Cash" Equity
(term) (term) (permanent)
…(o/n) (o/n) <(o/n) (o/n)
… … …
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves Deposits
(o/n)
P-Repos P-Repos "Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Equity
(local) (term) (term) (temporary)
… … … …
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
Reserves Deposit P-Repos P-CNAVs "Cash" Cash
(term)
P-Loans Deposits P-Bills "Cash"
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Public Backstops Private Backstops
Liabilities
(local) (term) (term) Source: Pozsar(2014)
81
Money dealing:
Money dealingis borrowing
and lending of short -term
money in the unsecured and
secured and local and global
(Eurodollar) money markets.
There are at least six
forms of money dealing…

82. T-Notes Currency
Reserves
T-Repos T-Repos "Cash"
…(o/n) <(o/n) (o/n)
(o/n) … … …
T-Notes T-Repos "Cash"
Cash PM
(reserve managers)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Reserves T-Bills
(o/n)
T-Repos T-CNAVs "Cash"
Equity
(term) (term) (permanent)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Assets
Public Assets
T-Bills
(term)
T-Bills "Cash" Equity
(term) (term) (permanent)
…(o/n) (o/n) <(o/n) (o/n)
… … …
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves FF
(o/n)
P-Repos P-Repos "Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Equity
(local) (term) (term) (temporary)
… … … …
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
FF FF P-Repos P-CNAVs "Cash" Cash[1]
(term)
P-Loans Deposits P-Bills "Cash"
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Public Backstops Private Backstops
Liabilities
(local) (term) (term) Source: Pozsar (2014)
82
Money dealing:
[1] Interbank money dealing
in the federal funds market.

83. (o/n)
(o/n) … … …
T-Notes T-Repos "Cash"
Cash PM
(reserve managers)
Currency
Reserves
T-Repos T-Repos "Cash"
…(o/n) <
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
(o/n)
[2]T-Notes
Reserves T-Bills
(o/n)
T-Repos T-CNAVs "Cash"
Equity
(term) (term) (permanent)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Assets
Public Assets
T-Bills
(term)
T-Bills "Cash" Equity
(term) (term) (permanent)
…(o/n) (o/n) <(o/n) (o/n)
… … …
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves FF
(o/n)
P-Repos P-Repos
…
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Cash PM
(seclenders)
[1] FF FF P-Repos P-CNAVs "Cash" Cash
Equity
(local) (term) (term) (temporary)
Banks
(wholesale)
Money Funds
(prime)
… … …
(term)
P-Loans Deposits P-Bills "Cash"
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
Public Backstops Private Backstops
Liabilities
(local) (term) (term) Source: Pozsar (2014)
83
Money dealing:
[1]Interbank money dealing
in the federal funds market.
[2]Interdealer money dea-
ling in the GCF repo market.

84. T-Notes Currency
Reserves
[2]T-Repos T-Repos "Cash"
…(o/n) <(o/n) (o/n)
(o/n) … … …
T-Notes T-Repos "Cash"
Cash PM
(reserve managers)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Reserves T-Bills
(o/n)
T-Repos T-CNAVs "Cash"
Equity
(term) (term) (permanent)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Assets
Public Assets
T-Bills
(term)
T-Bills "Cash" Equity
(term) (term) (permanent)
…(o/n) (o/n) <(o/n) (o/n)
… … …
[3]
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves FF
(o/n)
P-Repos P-Repos
…
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
…
…
Cash PM
(seclenders)
[1] FF FF P-Repos P-CNAVs "Cash" Cash
Equity
(local) (term) (term) (temporary)
(term)
P-Loans Deposits P-Bills "Cash"
(o/n) (collateral)
… … … …
(o/n) <(o/n) (o/n) <(o/n)
[3]
Public Backstops Private Backstops
Liabilities
(local) (term) (term)
Banks
(wholesale)
Money Funds
(prime)
… … … Source: Pozsar (2014)
84
Money dealing:
[1]Interbank money dealing
in the federal funds market.
[2]Interdealer money dea-
ling in the GCF repo market.
[3]Interlinkedmoney dea-
ling in the TRP repo market
(cash PM -> MMF-> dealer).

85. Cash PM
(reserve managers)
T-Notes Currency
Reserves
[2]T-Repos T-Repos "Cash"
…(o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
<(o/n)
Equity
(term) (term) (permanent)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
(o/n)
(o/n) … … …
T-Notes T-Repos "Cash"
(o/n) (o/n) <(o/n) (o/n)
… … …
Reserves T-Bills
(o/n)
[3]T-Repos T-CNAVs
Assets
Public Assets
T-Bills
(term)
T-Bills "Cash"
(o/n) (o/n)
Equity
(term) (term) (permanent)
"Cash"
…
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves FF
(o/n)
P-Repos P-Repos "Cash"
…(o/n) < (o/n) <
…
Equity
(local) (term) (term) (temporary)
… … … … …
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
[1] FF FF [3]P-Repos P-CNAVs "Cash" Cash
(o/n) <(o/n) (o/n) <(o/n) (o/n) (collateral)
… … … …
Public Backstops Private Backstops
Liabilities
(global) (term) (term) (term)
P-Loans Deposits P-Bills "Cash"[4] Source: Pozsar (2014)
85
Money dealing:
[1]Interbank money dealing
in the federal funds market.
[2]Interdealer money dea-
ling in the GCF repo market.
[3]Interlinkedmoney dea-
ling in the TRP repo market
(cash PM -> MMF-> dealer).
[4]Interoffice money dea-
ling via the NY branches
of foreign banks, funded
by selling Yankee CD and
CP to prime money funds
(see Shin, 2011 and 2013).

86. Cash PM
(reserve managers)
T-Notes Currency
Reserves
[2]T-Repos T-Repos "Cash"
…(o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
<(o/n)
Equity
(term) (term) (permanent)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
(o/n)
(o/n) … … …
T-Notes T-Repos "Cash"
(o/n) (o/n) <(o/n) (o/n)
… … …
Reserves T-Bills
(o/n)
[3]T-Repos T-CNAVs
Assets
Public Assets
T-Bills
(term)
T-Bills "Cash"
(o/n) (o/n)
Equity
(term) (term) (permanent)
"Cash"
…
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves FF
(o/n)
P-Repos P-Repos "Cash"
…(o/n) < (o/n) <
…
Equity
(local) (term) (term) (temporary)
… … … … …
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
…… … … …
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
[1] FF FF [3]P-Repos P-CNAVs "Cash" Cash
(o/n) <(o/n) (o/n) <(o/n) (o/n) (collateral)
Public Backstops Private Backstops
Liabilities
(global) (term) (global) (o/n) (term)
[5][4]P-Loans Deposits P-Bills P-CNAVs "Cash" Source: Pozsar (2014)
86
Money dealing:
[1]Interbank money dealing
in the federal funds market.
[2]Interdealer money dea-
ling in the GCF repo market.
[3]Interlinkedmoney dea-
ling in the TRP repo market
(cash PM -> MMF-> dealer).
[4]Interoffice money dea-
ling via the NY branches
of foreign banks, funded
by selling Yankee CD and
CP to prime money funds
(see Shin, 2011 and 2013).
[5]Crossbordermoney dea-
ling via the headquarters
of foreign banks selling
Eurodollar CD and CP to
prime money market funds.

87. Cash PM
(reserve managers)
T-Notes Currency
Reserves
[2]T-Repos T-Repos "Cash"
…(o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
<(o/n)
Equity
(term) (term) (permanent)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
(o/n)
(o/n) … … …
T-Notes T-Repos "Cash"
[6]
(o/n) (o/n) <(o/n) (o/n)
… … …
Reserves T-Bills
(o/n)
[3]T-Repos T-CNAVs
Assets
Public Assets
T-Bills
(term)
T-Bills "Cash"
(o/n) (o/n)
Equity
(term) (term) (permanent)
"Cash"
…
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Reserves FF
(o/n)
[6]P-Repos P-Repos "Cash"
…(o/n) < (o/n) <
…
Equity
(local) (term) (term) (temporary)
… … … … …
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
[1] FF FF [3]P-Repos P-CNAVs "Cash" Cash
(o/n) <(o/n) (o/n) <(o/n) (o/n) (collateral)
… … … …
Liabilities
"Cash"
(global) (term) (global) (term)
[4]P-Loans Deposits [5]P-Bills
Public Backstops Private Backstops Source: Pozsar (2014)
87
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.

88. Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Dealers’ buy-side clients:
risk portfolio managers (PM).
88
Source: Pozsar (2014)Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
(term)
Reserves P-Repos
(o/n) <
(o/n)
P-Repos
Sovereign
(U.S. Treasury)
<
…
P-Loans
(local)
Deposits
(term)
Banks
(wholesale)
… …
T-Repos
(o/n)
…
"Cash"
Money Funds
(government-only)
…
Cash PM
(reserve managers)
T-Notes T-Repos "Cash"
T-Notes T-Repos
(o/n)
Cash PM
(corporations)
Reserves T-Repos T-CNAVs "Cash"
…
"Cash"
(permanent)
…
Equity
(term)
"Cash"
(term)
Cash PM
(seclenders)
"Cash"
(o/n) <(o/n) (o/n)
(o/n)
…
Money Funds
(prime)
…
Equity
(temporary)
(o/n) <
P-Repos
(o/n)
Cash PM
(asset managers)
Equity
(term) (permanent)(term)
Liabilities
(global) (term) (global)
(o/n) (o/n)
… … …
P-Loans Deposits P-Bills
(term)
< (o/n) <
…
"Cash"
Risk PM
Risk PM
Risk PM
Public Backstops Private Backstops
(term)
… … …
P-Notes P-Repos
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
… …
T-Bills
Cash
(collateral)
FF FF
(o/n) (o/n)
(o/n)
Currency
Reserves
T-Bills
(o/n)
T-Bills
(term)
FF
(o/n)
"Cash"P-CNAVs
(o/n)

89. Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
89
Source: Pozsar (2014)Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
(term)
Reserves P-Repos
(o/n) <
(o/n)
P-Repos
Sovereign
(U.S. Treasury)
<
…
P-Loans
(local)
Deposits
(term)
Banks
(wholesale)
… …
T-Repos
(o/n)
…
"Cash"
Money Funds
(government-only)
…
Cash PM
(reserve managers)
T-Notes T-Repos "Cash"
T-Notes T-Repos
(o/n)
Cash PM
(corporations)
Reserves T-Repos T-CNAVs "Cash"
…
"Cash"
(permanent)
…
Equity
(term)
"Cash"
(term)
Cash PM
(seclenders)
"Cash"
(o/n) <(o/n) (o/n)
(o/n)
…
Money Funds
(prime)
…
Equity
(temporary)
(o/n) <
P-Repos
(o/n)
Cash PM
(asset managers)
Equity
(term) (permanent)(term)
Liabilities
(global) (term) (global)
(o/n) (o/n)
… … …
P-Loans Deposits P-Bills
(term)
< (o/n) <
…
"Cash"
Risk PM
Risk PM
Risk PM
Public Backstops Private Backstops
(term)
… … …
P-Notes P-Repos
Private Assets
Banks
(retail)
Dealer Banks
(credit desk)
… …
T-Bills
Cash
(collateral)
FF FF
(o/n) (o/n)
(o/n)
Currency
Reserves
T-Bills
(o/n)
T-Bills
(term)
FF
(o/n)
"Cash"P-CNAVs
(o/n)

90. Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
90
Source: Pozsar (2014)T-Repos "Cash"
…(o/n) <(o/n) (o/n)
(o/n)
T-Notes Currency
Reserves
T-Repos
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
… … …
T-Notes T-Repos "Cash"
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
…(o/n) (o/n) <(o/n) (o/n)
… … …
Reserves T-Bills
(o/n)
T-Repos T-CNAVs "Cash"
T-Bills
(term)
T-Bills "Cash" Equity
(term) (term) (permanent)
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
… …
Reserves FF
(o/n)
P-Repos P-Repos
Equity
(local) (term) (term) (temporary)
… … …
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Risk PM
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
FF FF P-Repos P-CNAVs
Private Assets
Risk PM
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
"Cash" Cash
(o/n) <(o/n) (o/n) <(o/n) (o/n) (collateral)
… … … …
P-Loans Deposits P-Bills
Public Backstops Private Backstops
Liabilities
"Cash"
(global) (term) (global) (term)

91. Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
91
Source: Pozsar(2014)T-Repos "Cash"
…(o/n) <(o/n) (o/n)
(o/n)
T-Notes Currency
Reserves
T-Repos
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
… … …
T-Notes T-Repos "Cash"
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
…(o/n) (o/n) <(o/n) (o/n)
… … …
Reserves T-Bills
(o/n)
T-Repos T-CNAVs "Cash"
T-Bills
(term)
T-Bills "Cash" Equity
(term) (term) (permanent)
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
… …
Reserves FF
(o/n)
P-Repos P-Repos
Equity
(local) (term) (term) (temporary)
… … …
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Risk PM
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
FF FF P-Repos P-CNAVs
Private Assets
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
"Cash" Cash
(o/n) <(o/n) (o/n) <(o/n) (o/n) (collateral)
… … … …
P-Loans Deposits P-Bills
Public Backstops Private Backstops
Liabilities
"Cash"
(global) (term) (global) (term)

92. Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:
92
Source: Pozsar (2014)T-Repos "Cash"
…(o/n) <(o/n) (o/n)
(o/n)
T-Notes Currency
Reserves
T-Repos
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
… … …
T-Notes T-Repos "Cash"
Assets
Public Assets
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
…(o/n) (o/n) <(o/n) (o/n)
… … …
Reserves T-Bills
(o/n)
T-Repos T-CNAVs "Cash"
T-Bills
(term)
T-Bills "Cash" Equity
(term) (term) (permanent)
"Cash"
…(o/n) < (o/n) <(o/n) (o/n)
… …
Reserves FF
(o/n)
P-Repos P-Repos
Equity
(local) (term) (term) (temporary)
… … …
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Risk PM
(cash for margining )
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
FF FF P-Repos P-CNAVs
Private Assets
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
"Cash" Cash
(o/n) <(o/n) (o/n) <(o/n) (o/n) (collateral)
… … … …
P-Loans Deposits P-Bills
Public Backstops Private Backstops
Liabilities
"Cash"
(global) (term) (global) (term)

93. Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:
93
Source: Pozsar(2014)T-Notes
(RMBS)
T-Repos
(term)
Public Assets
Assets
T-Bills
(term)
(o/n)
…
Reserves T-Bills
(o/n)
Risk PM
(M-REIT)
Sovereign
(U.S. Treasury)
…
Equity
Public Backstops Private Backstops
Liabilities
"Cash"
(global) (term) (global) (term)
(collateral)
… … … …
P-Loans Deposits P-Bills
Risk PM
(cash for margining)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
FF FF P-Repos P-CNAVs
Private Assets
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
"Cash" Cash
(o/n) <(o/n) (o/n) <(o/n) (o/n)
Equity
(local) (term) (term) (temporary)
… … …
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
(o/n) < (o/n) <(o/n) (o/n)
… …
Reserves FF
(o/n)
P-Repos P-Repos
(permanent)
…(o/n) <(o/n) (o/n)
… …
"Cash"
…
T-Repos T-CNAVs "Cash"
(term) (term)(temporary)
(term) <(term) (o/n)
(o/n)
Equity
Money Funds
(government-only)
Cash PM
(corporations)
T-Bills "Cash" Equity
(term) (term) (permanent)
T-Notes T-Repos "Cash"
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes T-Repos
… … …
Currency
Reserves
T-Repos "Cash"
…

94. 94
Source: Pozsar (2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
T-CNAVs
…Reserves (term) <
"Cash"
…(term) (o/n) (o/n) <(o/n) (o/n)
…
T-Notes T-Repos Reserves T-Bills
(o/n)
T-Repos
Equity
(temporary) (term) (term) (permanent)
… … …
Equity
Assets
T-Bills
(term)
T-Bills "Cash"
Private Assets
Equity
(temporary)
…
Risk PM
("real money")
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(short seller)
Reserves FF
(o/n)
P-Repos P-Repos "Cash"T-Notes
P-Notes
Equity
(local) (term) (term) (temporary)
…(o/n) < (o/n) <(o/n) (o/n)
… …
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
… …
Risk PM
(cash for margining)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
FF FF P-Repos P-CNAVs "Cash" Cash
(o/n) <(o/n) (o/n) <(o/n) (o/n) (collateral)
… … … …
Liabilities
"Cash"
(global) (term) (global) (term)
P-Loans Deposits P-Bills
Public Backstops Private Backstops

95. 95
Source: Pozsar (2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(
(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
T-CNAVs
…Reserves (term) <
"Cash"
…(term) (o/n) (o/n) <(o/n) (o/n)
…
T-Notes T-Repos Reserves T-Bills
(o/n)
T-Repos
Equity
(temporary) (term) (term) (permanent)
… … …
Equity
Assets
T-Bills
(term)
T-Bills "Cash"
(o/n)
P-Repos P-Repos
(o/n) < (term) <(o/n)
Risk PM
(seclender)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(short seller)
Cash P-Repos Reserves P-ReposFF [A]
(collat.)
Shorts
(P-Notes)
(o/n) <(o/n) (o/n) <(o/n) (o/n) (collateral)
Risk PM
(cash for margining)
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
FF FF P-Repos P-CNAVs
Private Assets
…
T-Notes
P-Notes
…
Equity
… … … …
P-Loans Deposits P-Bills
Public Backstops Private Backstops
Liabilities
"Cash"
(global) (term) (global) (term)
(temporary)
…
(term)
"Cash" Cash
Equity
(local) (term) (term) (temporary)
P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
(o/n)
… … … … …

96. 96
Source: Pozsar(2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(
[B]
(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
T-CNAVs
…Reserves (term) <
"Cash"
…(term) (o/n) (o/n) <(o/n) (o/n)
…
T-Notes T-Repos Reserves T-Bills
(o/n)
T-Repos
Equity
(temporary) (term) (term) (permanent)
… … …
Equity
Assets
T-Bills
(term)
T-Bills "Cash"
Risk PM
(seclender)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(short seller)
Shorts
(collat.) (term) (o/n) <(o/n) (term) <(o/n) (o/n) (P-Notes)
Cash P-Repos [A] Reserves FF P-Repos P-Repos P-Repos
…
Private Assets
… … … …
Equity
P-Notes (temporary) (local) (term) (term) (temporary)
… …
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
FF FF P-Repos P-CNAVs
Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)
Liabilities
"Cash"
(global) (term) (global) (term)
P-Loans Deposits P-Bills
(collat.)
Risk PM
(cash for margining)
Public Backstops Private Backstops
… … … …
"Cash" Cash
(o/n) <(o/n) (o/n) <(o/n) (o/n)

97. 97
Source: Pozsar (2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(
Equity
(temporary)
…
CDS
IRS
…
CDS
IRS
FXS
T-Notes
P-Notes
… … … …
"Cash" Cash
(o/n) <(o/n) (o/n) <
Public Backstops Private Backstops
Liabilities
"Cash"
(global) (term) (global) (term)
P-Loans Deposits P-Bills
P-Notes (temporary) (local) (term) (term) (temporary)
(o/n) (o/n) (collat.)
FF FF P-Repos P-CNAVs
…
Private Assets
… … … … … FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos "Cash" Equity
Risk PM Banks
(wholesale)
Money Funds
(prime)
Cash PM
(seclenders)(tactical hedger)
(collat.) (term) (o/n) <(o/n) (term) <(o/n) (o/n)
Cash P-Repos Reserves FF P-Repos P-Repos "Cash"
Equity
(temporary) (term) (term) (permanent)
… … …
Equity
Assets
T-Bills
(term)
T-Bills "Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
("overlay investor")
"Cash"
…(term) (o/n) (o/n) <(o/n) (o/n)
…
T-Notes T-Repos Reserves T-Bills
(o/n)
T-Repos
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
T-CNAVs
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

98. 98
Source: Pozsar (2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(
Liabilities
(term)
Public Backstops Private Backstops
"Cash"
P-Notes (temporary) (global) (term)
T-Notes Equity P-Loans Deposits
(o/n) (collat.)
FXS … … …
IRS … (o/n) <(o/n)
CDS FF FF
Equity
P-Notes (temporary) (local) (term) (term) (temporary)
"Cash" Cash
… …
Private Assets
… … … … … FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Risk PM Banks
(wholesale)
Cash PM
(seclenders)(tactical hedger)
CDS
(collat.) (term) (o/n) <(o/n) (term) <(o/n) (o/n) IRS
Cash P-Repos Reserves FF P-Repos P-Repos "Cash"
Equity
(temporary) (term) (permanent)
… …
Equity
Assets
T-Bills
(term)
"Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
("overlay investor")
"Cash"
…(term) (o/n) (o/n)
…
T-Notes T-Repos Reserves T-Bills
(o/n)
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

99. 99
Source: Pozsar (2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(
Liabilities
…
(term)
Public Backstops Private Backstops
Swaps P-Bills "Cash"
(collat.) (o/n) (collat.)
Cash
… FXS
(o/n) (o/n) IRS
FF Swaps
P-Notes (temporary) (global) (term) (uncoll.) (term)
T-Notes Equity P-Loans Deposits
Deposits
(term)
P-Notes P-Repos "Cash"
FXS … … … … …
Swaps "Cash"
IRS … (o/n) <(o/n) (collat.)<
CDS FF
… …
Private Assets
… … … …
P-Repos "Cash"
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
Cash PM
(seclenders)(tactical hedger)
Equity
P-Notes (temporary) (local) (term) (term) (temporary)
T-Notes Equity P-Loans
CDS
(collat.) (term) (o/n) <(o/n) (term) <
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
("overlay investor")
Cash P-Repos Reserves FF P-Repos
Equity
(temporary) (uncoll.) (term) (term) (permanent)
… … …
Equity
Assets
T-Bills
(term)
Swaps P-Bills "Cash"
Risk PM
(cash for shorting)
"Cash"
…(term) (o/n) (collat.)<(collat.) (o/n)
…
T-Notes T-Repos Reserves T-Bills
(o/n)
Swaps
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

100. 100
Source: Pozsar (2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(
"Cash" Cash
Cash P-Repos Reserves FF P-Repos P-Repos "Cash" CDS
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
Cash PM
(seclenders)(tactical hedger)
"Cash" Equity
P-Notes (temporary) (local)
Liabilities
CDS FF FF Swaps Swaps
Private Assets
(term)
Public Backstops Private Backstops
Swaps P-Bills "Cash"
P-Notes (temporary) (global) (term) (uncoll.) (term)
T-Notes Equity P-Loans Deposits
(collat.) (o/n) (collat.)
FXS … … … … …
IRS … (o/n) <(o/n) (collat.)<
(term) (term) (temporary)
… … FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos
… … … … …
(collat.) (term) (o/n) <(o/n) (term)
Equity
(temporary) (uncoll.) (term) (term) (permanent)
<(o/n) (o/n) IRS
Equity
Assets
T-Bills
(term)
Swaps P-Bills "Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
("overlay investor")
"Cash"
…(term) (o/n) (collat.)<(collat.) (o/n)
…
T-Notes T-Repos Reserves T-Bills
(o/n)
Swaps
… … … …
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

101. 101
Source: Pozsar (2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(
Liabilities
T-Bills
(o/n)
(term)
Public Backstops Private Backstops
Swaps P-Bills "Cash"
(collat.) (o/n) (collat.)
… … FXS
<(o/n)
P-Notes (temporary) (global) (term) (uncoll.) (term)
T-Notes Equity P-Loans Deposits
FXS … … … … …
Swaps "Cash" Cash
IRS … (o/n) <(o/n) (collat.)<
CDS FF FF Swaps
Banks
(wholesale)
Dealer Banks
(CDS)
Cash PM
(seclenders)(tactical hedger)
"Cash" Equity
P-Notes (temporary) (local) (term) (term) (temporary)
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos
Cash P-Repos Reserves FF
(o/n) IRS
… …
Private Assets
… … …
P-Repos P-Repos "Cash" CDS
(collat.) (term) (o/n) <(o/n) (term)
Risk PM
Equity
(temporary) (uncoll.) (term) (term) (permanent)
… … … …
Equity
Assets
T-Bills
(term)
Swaps P-Bills "Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
("overlay investor")
"Cash"
…(term) (o/n) (collat.)<(collat.) (o/n)
…
T-Notes T-Repos Reserves Swaps
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

102. 102
Source: Pozsar (2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(
…
Liabilities
(term)
Public Backstops Private Backstops
Swaps P-Bills "Cash"
FXS (temporary) (global) (term) (uncoll.) (term)
IRS Equity P-Loans Deposits
(collat.) (o/n) (collat.)
CDS … … … … ……
Margin
call
Swap
payables (o/n) <(o/n) (collat.)<
FF FF Swaps
(tactical hedger)
Equity
P-Notes (temporary) (local) (term) (term) (temporary)
Swaps "Cash" Cash
IRS
… …
Private Assets
… … … … … FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
Cash PM
(seclenders)
(collat.) (term) (o/n) <(o/n) (term) <(o/n) receivs.
Cash P-Repos Reserves FF P-Repos P-Repos Swap CDS
"Cash" Equity
(temporary) (uncoll.) (term) (term) (permanent)
… … … … …
Equity
Assets
T-Bills
(term)
Swaps P-Bills
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
("overlay investor")
"Cash"
…(term) (o/n) (o/n) (collat.)<(collat.) (o/n)
T-Notes T-Repos Reserves T-Bills Swaps
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

103. 103
Source: Pozsar (2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(
…
Liabilities
…
Equity
(temporary)
Public Backstops Private Backstops
FXS (global) (term) (uncoll.) (term) (term)
P-Loans Deposits Swaps P-Bills
CDS … … … … …
IRS "Cash"
"Cash" Cash
(o/n) <(o/n) (collat.)<(collat.)
Cash
(margin)
P-Repos
(o/n)
FF FF
(o/n) (collat.)
Swaps Swaps
Cash PM
(seclenders)(tactical hedger)
Equity
P-Notes (temporary) (local) (term) (term) (temporary)
IRS
… …
Private Assets
… … … …
[A]
… FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
(collat.) (term) (o/n) <(o/n) (o/n) <(o/n) receivs.
Cash P-Repos Reserves FF P-Repos P-Repos Swap CDS
"Cash" Equity
(temporary) (uncoll.) (term) (term) (permanent)
… … … … …
Equity
Assets
T-Bills
(term)
Swaps P-Bills
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
("overlay investor")
"Cash"
…(term) (o/n) (o/n) (collat.)<(collat.) (o/n)
T-Notes T-Repos Reserves T-Bills Swaps
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

104. 104
Source: Pozsar (2014)
Money dealing:
[6]Client-driven money dea-
ling in the DvPrepo market.
Mandate: “Beat benchmark”.
Three forms of leverage…
Type 1:
Type 2:
Type 3:(
…CDS …
Swaps P-Bills "Cash"IRS Equity P-Loans Deposits
… … … … …
"Cash"
(collat.) (o/n) (collat.)
Liabilities
(term)FXS (temporary) (global) (term) (uncoll.) (term)
Public Backstops Private Backstops
(term) (temporary)
Cash
(margin)
FF FFP-Repos
(o/n)
[A]
Risk PM Banks
(wholesale) (seclenders)
Cash PM
[B]
Swaps Swaps Cash
(o/n) <(o/n) (collat.)<
IRS
… …
Private Assets
… … … … FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Dealer Banks
(CDS)(tactical hedger)
Equity
P-Notes (temporary) (local) (term)
(collat.) (term) (o/n) <(o/n) (o/n) <(o/n) receivs.
Cash P-Repos Reserves FF P-Repos P-Repos Swap CDS
"Cash" Equity
(temporary) (uncoll.) (term) (term) (permanent)
… … … … …
Equity
Assets
T-Bills
(term)
Swaps P-Bills
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
("overlay investor")
"Cash"
…(term) (o/n) (o/n) (collat.)<(collat.) (o/n)
T-Notes T-Repos Reserves T-Bills Swaps
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

105. 105
Source: Pozsar (2014)
Where is the real economy?
Money market funding of
capital market lending
(see Mehrlinget al, 2013).(
…
(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <
"Cash"
…(term) (o/n) (o/n) (collat.)<(collat.) (o/n)
T-Notes T-Repos Reserves T-Bills Swaps
"Cash" Equity
(temporary) (uncoll.) (term) (term) (permanent)
… … … … …
Equity
Assets
T-Bills
(term)
Swaps P-Bills
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Cash P-Repos Reserves FF P-Repos P-Repos "Cash" CDS
(collat.) (term) (o/n) <(o/n) (o/n) <(o/n) (o/n) IRS
… …
Private Assets
… … … …
(term) (temporary)
FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos "Cash" Equity
(collat.)
CDS … … … … … …
Cash
(o/n) (o/n) <(o/n) (collat.)<
FF FF Swaps Swaps
(seclenders)
Swaps P-Bills "Cash"
FXS (temporary) (global) (term) (uncoll.) (term)
IRS Equity P-Loans Deposits
"Cash"
…
Public Backstops Private Backstops
Liabilities
(term)
(collat.) (o/n)
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
Cash PM
(cash for margining)
Cash
(margin)
P-Repos
P-Notes (temporary) (local) (term)

106. 106
Source: Pozsar (2014)
Where is the real economy?
Money market funding of
capital market lending…
[1]Funded risk PMs’
securities portfolios,…(
…
(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <
"Cash"
…(global) (term) (o/n) (o/n) (collat.)<(collat.) (o/n)
T-Notes T-Repos Reserves T-Bills Swaps
"Cash" Equity
(temporary) (uncoll.) (term) (term) (permanent)
… … … … …
Equity
Assets
T-Bills
(term)
Swaps P-Bills
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
Cash P-Repos Reserves FF P-Repos P-Repos "Cash" CDS
(collat.) (term) (o/n) <(o/n) (o/n) <(o/n) (o/n) IRS
… …
Private Assets
… … … …
(term) (term) (temporary)
… FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
(collat.)
CDS … … … … … …
"Cash" Cash
(o/n) (o/n) <(o/n) (collat.)<(collat.)
FF FF Swaps Swaps
Swaps P-Bills "Cash"
FXS (temporary) (global) (term) (uncoll.) (term)
IRS Equity P-Loans Deposits
[1]
Public Backstops Private Backstops
Liabilities
(term)
(o/n)
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
Cash PM
(cash for margining) (seclenders)
Cash
(margin)
P-Repos
Equity
P-Notes (temporary) (local)

107. 107
Source: Pozsar(2014)
Where is the real economy?
Money market funding of
capital market lending…
[2]Foreign banks’ USD
securities portfolios,…(
…
(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <
(global) (term) (o/n) (o/n) (collat.)<(collat.)
[1]T-Notes T-Repos Reserves T-Bills
(o/n)
… … … … …
Swaps "Cash"
…
Equity
(temporary) (uncoll.) (term) (term) (permanent)
Equity
Assets
T-Bills
(term)
Swaps P-Bills "Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
P-Repos "Cash" CDS
(collat.) (term) (o/n) <(o/n) (o/n) <
Cash P-Repos Reserves FF P-Repos
(o/n) (o/n) IRS
… …
Private Assets
… … … …
Equity
P-Notes (temporary) (local) (term) (term) (temporary)
… FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
Cash PM
(cash for margining) (seclenders)
Cash
(margin)
P-Repos "Cash" Cash
(o/n) (o/n) <(o/n) (collat.)<(collat.)
FF FF Swaps Swaps
(o/n) (collat.)
CDS … … … … … …
Swaps P-Bills "Cash"
FXS (temporary) (global) (term) (uncoll.) (term)
IRS Equity [2]P-Loans Deposits
Public Backstops Private Backstops
Liabilities
(term)

108. 108
Source: Pozsar(2014)
Where is the real economy?
Money market funding of
capital market lending…
[3]Large U.S. banks’
securities portfolios,…(
…
Public Backstops Private Backstops
Liabilities
(term) (term)[3]
Swaps P-Bills "Cash"
FXS (temporary) (global) (term) (uncoll.)
IRS Equity [2]P-Notes Deposits
(o/n) (collat.)
CDS … … … … … …
"Cash" Cash
(o/n) (o/n) <(o/n) (collat.)<(collat.)
FF FF Swaps Swaps
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
Cash PM
(cash for margining) (seclenders)
Cash
(margin)
P-Repos
Equity
P-Notes (temporary) (local) (term) (term) (temporary)
… FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos "Cash"
(o/n) (o/n) IRS
… …
Private Assets
… … … …
P-Repos "Cash" CDS
(collat.) (term) (o/n) <(o/n) (o/n) <
Cash P-Repos Reserves FF P-Repos
Equity
(temporary) (uncoll.) (term) (term) (permanent)
Equity
Assets
T-Bills
(term)
Swaps P-Bills "Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
(o/n)
… … … … …
Swaps "Cash"
…(global) (term) (o/n) (o/n) (collat.)<(collat.)
[1]T-Notes T-Repos Reserves T-Bills
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

109. 109
Source: Pozsar(2014)
Where is the real economy?
Money market funding of
capital market lending…
[4]Dealer banks’ securities
inventories (net financing).(
…
Public Backstops Private Backstops
Liabilities
(uncoll.) (term) (term)
Swaps P-Bills "Cash"
FXS (temporary) [3](global) (term)
IRS Equity [2]P-Notes Deposits
(o/n) (collat.)
CDS … … … … … …
"Cash" Cash
(o/n) (o/n) <(o/n) (collat.)<(collat.)
FF FF Swaps Swaps
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
Cash PM
(cash for margining) (seclenders)
Cash
(margin)
P-Repos
Equity
P-Notes (temporary) (local) (term) (term) (temporary)(global)
… FXS
T-Notes Equity P-Loans Deposits
(term)
[4]P-Notes P-Repos "Cash"
(o/n) (o/n) IRS
… …
Private Assets
… … … …
P-Repos "Cash" CDS
(collat.) (term) (o/n) <(o/n) (o/n) <
Cash P-Repos Reserves FF P-Repos
Equity
(temporary) (uncoll.) (term) (term) (permanent)
Equity
Assets
T-Bills
(term)
Swaps P-Bills "Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
(o/n)
… … … … …
Swaps "Cash"
…(global) (term) (o/n) (o/n) (collat.)<(collat.)
[1]T-Notes T-Repos Reserves T-Bills
Equity
(term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
(global)
Public Assets
(o/n) … … …
[4]T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

110. 110
Source: Pozsar (2014)
Not all repos are equal:
Most repos are responsible
for facilitating price dis -
coveryin a market making
context, but not funding
the real economy directly.(
…
[Ø]
[Ø]
Public Backstops Private Backstops
Liabilities
(uncoll.) (term)
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
(o/n)
P-Repos
FF FF Swaps Swaps
(term)
Swaps P-Bills "Cash"
FXS (temporary) [3](global) (term)
IRS Equity [2]P-Notes Deposits
(o/n) (collat.)
CDS … … … … … …
(o/n) (o/n) <(o/n) (collat.)<(collat.)
P-Notes (temporary) (local) (global) (term) (term) (temporary)
"Cash" Cash
… …
Private Assets
… … … … … FXS
T-Notes Equity P-Loans Deposits
(term)
[4]P-Notes P-Repos "Cash"
Cash PM
(cash for margining) (seclenders)
Cash
(margin)
P-Repos
Equity
"Cash" CDS
(collat.) (term) (o/n) <(o/n) (o/n) <
Cash P-Repos Reserves FF P-Repos
(o/n) IRS
Equity
(temporary) (uncoll.) (term) (term) (permanent)
Equity
Assets
T-Bills
(term)
Swaps P-Bills "Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
(o/n)
… … … … …
Swaps "Cash"
…(global) (term) (o/n) (o/n) (collat.)<(collat.)
[1]T-Notes T-Repos Reserves T-Bills
Equity
(global) (term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
[4]T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

111. 111
Source: Pozsar (2014)
RRPs and risk PMs:
Through RRPs, the Fed will
have direct control over
haircutsand leverage. Fed
haircuts will be the floor.(
…
…(o/n) (o/n) <(o/n) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes RRPs RRPs T-Repos "Cash"
T-Notes T-Repos Reserves T-Bills
Equity
(global) (term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Currency
Public Assets
… … … …
T-Notes T-Repos "Cash"
(o/n)
… … … …
T-CNAVs "Cash"
…(term) (o/n) (o/n) (o/n) <(o/n)
RRPs
Cash P-Repos Reserves FF
Equity
(temporary) (term) (term) (permanent)
Equity
Assets
T-Bills
(term)
T-Bills "Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
(o/n) IRS
… …
Private Assets
… … …
RRPs P-Repos "Cash" CDS
(collat.) (term) (o/n) <(o/n) (o/n)
… FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos
Cash PM
(cash for margining) (seclenders)
RRPs
"Cash" Equity
P-Notes (temporary) (local) (global) (term) (term) (temporary)
Cash
(margin)
P-Repos FF FF
Risk PM Banks
(wholesale)
"Cash" Cash
(o/n) (o/n) <(o/n) (o/n) <
IRS Equity P-Notes Deposits
(o/n) (o/n) (collat.)
CDS … … … … …
(term)
P-Bills "Cash"
FXS (temporary) (global) (term)
Reserves
Public Backstops Private Backstops
Liabilities
(term)
P-CNAVs
Money Funds
(prime)
…
<(o/n)
(global)

112. 112
Source: Pozsar (2014)
RRPs and risk PMs:
Fed will have control over
market-based credit cycles.
This will raise the cost of
leverage for risk PMs and
reduce seclendingvolumes.(
…
…(o/n) (o/n) <(o/n) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes RRPs RRPs T-Repos "Cash"
T-Notes T-Repos Reserves T-Bills
Equity
(global) (term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Money Funds
(government-only)
Cash PM
(corporations)
Currency
Public Assets
… … … …
T-Notes T-Repos "Cash"
(o/n)
… … … …
T-CNAVs "Cash"
…(term) (o/n) (o/n) (o/n) <(o/n)
RRPs
Cash P-Repos Reserves FF
Equity
(temporary) (term) (term) (permanent)
Equity
Assets
T-Bills
(term)
T-Bills "Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
(o/n) IRS
… …
Private Assets
… … …
RRPs P-Repos "Cash" CDS
(collat.) (term) (o/n) <(o/n) (o/n)
… FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos
Cash PM
(cash for margining) (seclenders)
RRPs
"Cash" Equity
P-Notes (temporary) (local) (global) (term) (term) (temporary)
Cash
(margin)
P-Repos FF FF
Risk PM Banks
(wholesale)
"Cash" Cash
(o/n) (o/n) <(o/n) (o/n) <
IRS Equity P-Notes Deposits
(o/n) (o/n) (collat.)
CDS … … … … …
(term)
P-Bills "Cash"
FXS (temporary) (global) (term)
Reserves
Public Backstops Private Backstops
Liabilities
(term)
P-CNAVs
Money Funds
(prime)
…
<(o/n)
(global)

113. 2. The Hierarchy of Access.
113
3. The Hierarchy of Uses. .
4. The Dealer Eco-System.
1. The Hierarchy of Money.
5. The Macro Perspective.
6. Policy Implications. ..

114. 114
“If you can’t explain it to
a six year old you don’t un -
derstandit yourself.”
Albert Einsteinxxxx
Source: Pozsar (2014)(
…
Public Backstops Private Backstops
Liabilities
(uncoll.) (term) (term)
Swaps P-Bills "Cash"
FXS (temporary) (global) (term)
IRS Equity P-Notes Deposits
(collat.) (o/n) (collat.)
CDS … … … … … …
Swaps "Cash" Cash
(o/n) (o/n) <(o/n) (collat.)<
Cash
(margin)
P-Repos FF FF
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)
Cash PM
(cash for margining) (seclenders)
Swaps
"Cash" Equity
P-Notes (temporary) (local) (global) (term) (term) (temporary)
… … FXS
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos
<(o/n) (o/n) IRS
… …
Private Assets
… … …
P-Repos P-Repos "Cash" CDS
(collat.) (term) (o/n) <(o/n) (o/n)
Cash P-Repos Reserves FF
Equity
(temporary) (uncoll.) (term) (term) (permanent)
Equity
Assets
T-Bills
(term)
Swaps P-Bills "Cash"
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash PM
(asset managers)
(o/n)
… … … … …
Swaps "Cash"
…(global) (term) (o/n) (o/n) (collat.)<(collat.)
T-Notes T-Repos Reserves T-Bills
Equity
(global) (term) (term) (permanent)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(corporations)
Public Assets
(o/n) … … …
T-Notes T-Repos "Cash"
Swaps
…Reserves (term) <(term) (o/n)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
Cash PM
(reserve managers)
T-Notes Currency T-Repos T-Repos "Cash"

115. “If you can’t explain it to
a six year old you don’t un -
derstandit yourself.”
Albert Einsteinxxxx
115
Source: Pozsar (2014)…
(
…
FXS
CDS
IRS
"Cash"
Public Backstops Private Backstops
Liabilities
(uncoll.) (term)
Swaps P-Bills
FXS (temporary) (global) (term)
IRS Equity P-Notes Deposits
CDS … … … … …
(o/n) (o/n) <(o/n) (collat.)<(collat.)
FF FF Swaps Swaps
Risk PM Banks
(wholesale)
Dealer Banks
(CDS)(cash for margining)
Cash
(margin)
P-Repos
P-Notes (temporary) (local) (global) (term)
T-Notes Equity P-Loans Deposits
(term)
P-Notes P-Repos
(o/n)
… …
Private Assets
… … … …
P-Repos
(collat.) (term) (o/n) <(o/n) (o/n) <
Risk PM
(cash for shorting)
Banks
(retail)
Dealer Banks
(credit desk)
Cash P-Repos Reserves FF P-Repos
Equity
(temporary) (uncoll.) (term) (temporary)
… … … …
Equity
Assets
T-Bills
(term)
Swaps P-Bills
(global) (term) (o/n) (o/n) (collat.)<(collat.)
T-Notes T-Repos Reserves T-Bills Swaps
(global) (term)
Risk PM
(cash for funding)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(search for safety)
Public Assets
(o/n) … …
T-Notes T-Repos
Swaps
Reserves (term) <(term)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos

116. “If you can’t explain it to
a six year old you don’t un -
derstandit yourself.”
Albert Einsteinxxxx
116
Source: Pozsar (2014)…
CDS
IRS
FXS
Public Backstops Private Backstops
Liabilities
(uncoll.) (term)
Swaps P-Bills
(global) (term)
P-Notes Deposits
… … … …
(o/n) <(o/n) (collat.)<(collat.)
FF FF Swaps Swaps
Banks
(wholesale)
Dealer Banks
(CDS)
(local) (global) (term)
P-Loans Deposits
(term)
P-Notes P-Repos
(o/n)
Private Assets
… … … …
P-Repos
(o/n) <(o/n) (o/n) <
Reserves FF P-Repos
Equity
(temporary) (uncoll.) (term) (temporary)
Equity
Assets
T-Bills
(term)
Swaps P-Bills
Banks
(retail)
Dealer Banks
(credit desk)
… … … … FXS
"Cash"
CDS
P-Notes P-Repos (o/n) (o/n) (collat.)<(collat.) IRS
T-Notes T-Repos Reserves T-Bills Swaps
(global) (term)
Risk PM
(search for yield)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(search for safety)
Public Assets
(o/n) … …
T-Notes T-Repos
Swaps
Reserves (term) <(term)
Central Bank
(Federal Reserve)
Dealer Banks
(government desk)
T-Notes Currency T-Repos T-Repos

117. “If you can’t explain it to
a six year old you don’t un -
derstandit yourself.”
Albert Einsteinxxxx
117
Source: Pozsar (2014)…
Money Dealers
(cash for collateral )
Money Dealers
(cash for collateral )
Public Backstops Private Backstops
Liabilities
(uncoll.) (term)
Swaps P-Bills
(global) (term)
P-Notes Deposits
… … … …
(o/n) <(o/n) (collat.)<(collat.)
FF FF Swaps Swaps
Banks
(wholesale)
Dealer Banks
(CDS)
(local) inventory (net)
P-Loans Deposits
(term)
Trading Financing
books
Private Assets
… … … …
Matched
(o/n) <(o/n) books <
Reserves FF Matched
(temporary) (uncoll.) (term) (temporary)
Banks
(retail)
FXS
IRS Equity
Assets
T-Bills
(term)
Swaps P-Bills Equity
FXS
CDS … … … …
"Cash"
CDS
P-Notes P-Repos (o/n) (o/n) (collat.)<(collat.) IRS
T-Notes T-Repos Reserves T-Bills Swaps
inventory (net)
Risk PM
(search for yield)
Sovereign
(U.S. Treasury)
Dealer Banks
(IRS and FXS)
Cash PM
(search for safety)
Public Assets
(o/n) … …
Trading Financing
Swaps
Reserves books <books
Central Bank
(Federal Reserve)
T-Notes Currency Matched Matched

118. “If you can’t explain it to
a six year old you don’t un -
derstandit yourself.”
Albert Einsteinxxxx
118
Source: Pozsar (2014)…
Public Backstops Private Backstops
Liabilities
inventory (net)
Trading Financing
(global) (term)
P-Notes Deposits
… … … …
(o/n) <(o/n) books <books
FF FF Matched Matched
Banks
(wholesale)
Risk Dealers
(risk for collateral )
(local) inventory (net)
P-Loans Deposits
(term)
Trading Financing
books
Private Assets
… … … …
Matched
(o/n) <(o/n) books <
Reserves FF Matched
(temporary) inventory (net) (temporary)
Banks
(retail)
Money Dealers
(cash for collateral)
FXS
IRS Equity
Assets
T-Bills
(term)
Trading Financing Equity
FXS
CDS … … … …
"Cash"
CDS
P-Notes P-Repos (o/n) (o/n) books <books IRS
T-Notes T-Repos Reserves T-Bills Matched
inventory (net)
Risk PM
(search for yield)
Sovereign
(U.S. Treasury)
Cash PM
(search for safety)
Risk Dealers
(risk for collateral )
Public Assets
(o/n) … …
Trading Financing
Matched
Reserves books <books
Central Bank
(Federal Reserve)
Money Dealers
(cash for collateral)
T-Notes Currency Matched Matched

119. “If you can’t explain it to
a six year old you don’t un -
derstandit yourself.”
Albert Einsteinxxxx
119
Source: Pozsar (2014)…
Public Backstops Private Backstops
Liabilities
(global) (term)
P-Notes Deposits
… …
(o/n) <(o/n)
FF FF
Banks
(wholesale)
(local) inventory (net)
P-Loans Deposits
(term)
Trading Financing
books
Private Assets
… … … …
Matched
(o/n) <(o/n) books <
Reserves FF Matched
(temporary) inventory (net) (temporary)
Banks
(retail)
Risk Dealers
(risk for collateral)
FXS
IRS Equity
Assets
T-Bills
(term)
Trading Financing Equity
FXS
CDS … … … …
"Cash"
CDS
P-Notes P-Repos (o/n) (o/n) books <books IRS
T-Notes T-Repos Reserves T-Bills Matched
Risk PM
(search for yield)
Sovereign
(U.S. Treasury)
Money Dealers
(cash for collateral)
Cash PM
(search for safety)
Public Assets
(o/n)
Matched
Reserves
Central Bank
(Federal Reserve)
T-Notes Currency

120. “If you can’t explain it to
a six year old you don’t un -
derstandit yourself.”
Albert Einsteinxxxx
120
Source: Pozsar (2014)…
inventory (net)
Trading Financing
books
… …
Matched
books <
Risk Dealers
(risk for collateral)
Matched
FXS (temporary) inventory (net) (temporary)
FXS
IRS Equity Trading Financing Equity
CDS … … …
CDS
P-Notes P-Repos books <books IRS
T-Notes T-Repos Matched
Risk PM
(search for yield)
Money Dealers
(cash for collateral)
Cash PM
(search for safety)
Matched
"Cash"

121. 121
The dealer eco-system:
Source: Mehrlinget al (2013) –Bagehot Was a Shadow Banker…
"Cash"
Financing
inventory (net)
Trading
… …
Matched
booksbooks <
Risk Dealer
(risk for collateral)
Matched
Equity
FXS (temporary) inventory (net) (temporary)
IRS Equity Trading Financing
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Matched
IRS
CDS … … … FXS
CDS
P-Notes P-Repos books <books
T-Notes T-Repos Matched

122. 122
Source: Mehrlinget al (2013) –Bagehot Was a Shadow Banker
The dealer eco-system:
Risk and cash PMs… …
"Cash"
inventory (net)
… …
Trading Financing
books <
(temporary)
Risk Dealer
(risk for collateral)
Matched Matched
books
FXS (temporary) inventory (net)
IRS Equity Trading Financing Equity
IRS
CDS … … … FXS
P-Notes P-Repos books <books
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
T-Notes T-Repos Matched Matched CDS

123. 123
Source: Mehrlinget al (2013) –Bagehot Was a Shadow Banker
The dealer eco-system:
Risk and cash PMs and money and risk dealers.…
"Cash"
inventory (net)
… …
Trading Financing
books <
(temporary)
Risk Dealer
(risk for collateral)
Matched Matched
books
FXS (temporary) inventory (net)
IRS Equity Trading Financing Equity
IRS
CDS … … … FXS
P-Notes P-Repos books <books
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
T-Notes T-Repos Matched Matched CDS

124. 124
Source: Mehrlinget al (2013) –Bagehot Was a Shadow Banker
The dealer eco-system:
Risk and cash PMs and money and risk dealers.
Matched book……
"Cash"
inventory (net)
… …
Trading Financing
books <
(temporary)
Risk Dealer
(risk for collateral)
Matched Matched
books
FXS (temporary) inventory (net)
IRS Equity Trading Financing Equity
IRS
CDS … … … FXS
P-Notes P-Repos books <books
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
T-Notes T-Repos Matched Matched CDS

125. 125
Source: Mehrlinget al (2013) –Bagehot Was a Shadow Banker
The dealer eco-system:
Risk and cash PMs and money and risk dealers.
Matched book and “inventory” (net) positions.…
"Cash"
inventory (net)
… …
Trading Financing
books <
(temporary)
Risk Dealer
(risk for collateral)
Matched Matched
books
FXS (temporary) inventory (net)
IRS Equity Trading Financing Equity
IRS
CDS … … … FXS
P-Notes P-Repos books <books
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
T-Notes T-Repos Matched Matched CDS

126. 126
Search for yield versus search for safety:
Risk PMs are security rich but return poor. They alwayssearch for yield.
Cash PMs are cash rich but safety poor. They primarilysearch for safety.
Source: Pozsar (2014)…
inventory (net)
… …
Trading Financing
books <
(temporary)
Risk Dealer
(risk for collateral)
Matched Matched
books
FXS (temporary) inventory (net)
IRS Equity Trading Financing Equity
CDS … … … FXS
P-Notes P-Repos books <books IRS
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
T-Notes T-Repos Matched Matched
"Cash"
CDS

127. 127
Source: Pozsar (2014)
Natural complements:
Risk PMs repo securities out and cash in.
Cash PMs repo cash out and securities in.…
Securities Out
Cash In
Securities In
Cash Out
inventory (net)
… …
Trading Financing
books <
(temporary)
Risk Dealer
(risk for collateral)
Matched Matched
books
FXS (temporary) inventory (net)
IRS Equity Trading Financing Equity
CDS … … … FXS
P-Notes P-Repos books <books IRS
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
T-Notes T-Repos Matched Matched
"Cash"
CDS

128. 128
The role of collateral:
Collateral gives sense of safety for cash lenders.
Cash enables risk taking via funding and shorting .
Source: Pozsar (2014)…
"Cash"
Securities Out Securities In
Cash In Cash Out
inventory (net)
… …
Trading Financing
books <
(temporary)
Risk Dealer
(risk for collateral)
Matched Matched
books
FXS (temporary) inventory (net)
IRS Equity Trading Financing Equity
IRS
CDS … … … FXS
P-Notes P-Repos books <books
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
T-Notes T-Repos Matched Matched CDS

129. 129
The role of collateral:
Swaps positions give rise to un -secured derivatives receivables for those in the money.
Collateral gives sense of safety for those in the money, who are de factocash lenders.
Source: Pozsar (2014)…
Cash In Cash Out
Securities Out Securities In
inventory (net)
… …
Trading Financing
books <
(temporary)
Risk Dealer
(risk for collateral)
Matched Matched
books
FXS (temporary) inventory (net)
Equity
CDS … … … FXS
IRS Equity Trading Financing
IRS
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
T-Notes T-Repos Matched Matched
"Cash"
CDS
P-Notes P-Repos books <books

130. …
IRS
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
T-Notes T-Repos Matched Matched
"Cash"
CDS
DvP
TRP
DvP
P-Notes P-Repos books <books
(temporary)
IRS Equity Trading Financing Equity
CDS … … … FXS
FXS (temporary) inventory (net)
Securities Out Securities In
$1,983 $1,983 $964
-
DvP
Cash In Cash Out
GCF
(inter-dealer)
- - $1,608
$463 $463
Net- $589 --
$2,446$2,446
Reverse Repo Transactions Repo Transactions
Total
GCF
-
DvP
$3,035
$463
$3,035
$1,608
$964
Total
GCF
TRP
$463 130
Sizing the U.S. repo market:
$ trillions as of 2012Q2
Cash PMs placed over $3 trillion in cash with dealers. Of this, $2.5 trillion were lent on,
with the difference used to finance inventories. Risk PMs absorbed $2 trillionin funding.
Source: Pozsar (2014) and Copeland et al (2012)

131. 0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Assets Liabilities Assets Liabilities
Q2-07 Q3-13
Secs. In [SI] RRs [SI] Secs. Borrowed [SI] Secs. Out [SO] RPs [SO] Secs. Loaned [SO] Balance 131
Money dealing using public bonds by motive:
$ trillions
Source: Haver, Federal Reserve Bank of New York

132. 0
50
100
150
200
250
300
350
400
450
500
Assets Liabilities Assets Liabilities
Q2-07 Q3-13
Secs. In [SI] RRs [SI] Secs. Borrowed [SI] Secs. Out [SO] RPs [SO] Secs. Loaned [SO] Balance 132
Money dealing using private bonds by motive:
$ trillions
Source: Haver, Federal Reserve Bank of New York

133. 2. The Hierarchy of Access.
133
3. The Hierarchy of Uses. .
4. The Dealer Eco-System.
1. The Hierarchy of Money.
5. The Macro Perspective .
6. Policy Implications. ..

134. 134
Source: Pozsar (2014)
Macro imbalances shaping the eco -system:
Present and future macro imbalances shape the contours of the global financial
eco-system. What dealer banks do is a reflection of the eco -system they inhabit.…
Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
T-Notes T-Repos Matched Matched
"Cash"
CDS
CDS … … … FXS
P-Notes P-Repos books <books IRS
FXS (temporary) inventory (net) (temporary)
IRS Equity Trading Financing Equity
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
Trading Financing
inventory (net)
Imbalances
(future)
Imbalances
(present)
Macro Drivers
(global and local)
Macro Drivers
(global and local)
Cash In Cash Out
Securities Out Securities In

135. 135
Source: Pozsar (2014)
Macro imbalances shaping the eco -system:
The secular rise of cash PMshas been driven by…
[1]the secularrise of managed FX regimes and FX reserves’ so -called “liquidity tranches”.…
Cash In Cash Out
Securities Out Securities In
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
FXS (temporary) inventory (net) (temporary)
IRS Equity Trading Financing Equity
CDS … … … FXS
[1]
P-Notes P-Repos books <books IRS
(global and local)
T-Notes T-Repos Matched Matched
"Cash"
CDS Managed FX Regimes
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local)

136. 136
Source: Pozsar (2014)
Macro imbalances shaping the eco -system:
The secular rise of cash PMshas been driven by…
[2]the secularrise of corporate profits vs. stagnant wages and capex(see Summers, 2013).…
[2]Capital vs. Labour
Cash In Cash Out
Securities Out Securities In
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
FXS (temporary) inventory (net) (temporary)
IRS Equity Trading Financing Equity
CDS … … … FXS
[1]
P-Notes P-Repos books <books IRS
(global and local)
T-Notes T-Repos Matched Matched
"Cash"
CDS Managed FX Regimes
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local)

137. 137
Source: Pozsar (2014)
Macro imbalances shaping the eco -system:
The secular rise of cash PMshas been driven by…
[3]the secularrise of a highly concentrated asset management complex (see OFR, 2013).…
[3]Cash Pooling (AMX)
Cash In Cash Out
Securities Out Securities In
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
FXS (temporary) inventory (net) (temporary)
IRS Equity Trading Financing Equity
CDS … … … FXS
[1]
P-Notes P-Repos books <books IRS Capital vs. Labour [2]
(global and local)
T-Notes T-Repos Matched Matched
"Cash"
CDS Managed FX Regimes
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local)

138. 138
Source: Pozsar (2014)
Macro imbalances shaping the eco -system:
The secular rise of risk PMshas been driven by…
[4]the secularrise in underfunded pension promises (see Caballero, 2013 ).…
[4]Underfunded Pensions
FXS (temporary) inventory (net)
Cash In Cash Out
Securities Out Securities In
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
(temporary)
Cash Pooling (AMX) [3]
IRS Equity Trading Financing Equity
CDS … … … FXS
[1]
P-Notes P-Repos books <books IRS Capital vs. Labour [2]
(global and local)
T-Notes T-Repos Matched Matched
"Cash"
CDS Managed FX Regimes
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local)

139. 139
Source: Pozsar (2014)
Macro imbalances shaping the eco -system:
The secular rise of risk PMshas been driven by…
[5] the secularrise in FX reserves’ sterilization costs (see Borioet al, 2008).…
[5]
Cash In Cash Out
Securities Out Securities In
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
FXS (temporary) inventory (net) (temporary)
FXS Cash Pooling (AMX) [3]
IRS Equity Trading Financing Equity
CDS … … …
[1]
Sterilization Costs P-Notes P-Repos books <books IRS Capital vs. Labour [2]
[4]Underfunded Pensions T-Notes T-Repos Matched Matched
"Cash"
CDS Managed FX Regimes
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local) (global and local)

140. 140
Source: Pozsar (2014)
Macro imbalances shaping the eco -system:
The secular rise of risk PMshas been driven by…
[6]the seculardecline in yields and un -changed return expectations (see BlackRock, 2013).…
[6]
Cash In Cash Out
Securities Out Securities In
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
FXS (temporary) inventory (net) (temporary)
IRS Equity Trading Financing Equity
"Rosy" Expectations CDS … … … FXS Cash Pooling (AMX) [3]
[1]
[5]Sterilization Costs P-Notes P-Repos books <books IRS Capital vs. Labour [2]
[4]Underfunded Pensions T-Notes T-Repos Matched Matched
"Cash"
CDS Managed FX Regimes
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local) (global and local)

141. 141
Source: Pozsar (2014)
Four simple goals that make the eco -system go ‘round:
[1]CIOsaim to generate enough return to fulfil their mandate to “ meet liabilities”.
This is why CIOs look beyond long -only strategies and allocate to leveraged risk PMs.…
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local) (global and local)
Underfunded Pensions T-Notes T-Repos Matched Matched
"Cash"
CDS Managed FX Regimes
Sterilization Costs P-Notes P-Repos books <books IRS Capital vs. Labour
"Rosy" Expectations CDS … … … FXS Cash Pooling (AMX)
FXS (temporary) inventory (net) (temporary)
IRS Equity Trading Financing Equity
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
Trading Financing
inventory (net)
CIOs
"Meet Liabilities"

142. 142
Source: Pozsar (2014)
Four simple goals that make the eco -system go ‘round:
[2]Risk PMsaim to generate enough return to fulfil their mandate to “ beat benchmarks”.
Risk PMs get leverage from dealers, who get the cash to provide leverage from cash PMs.…
Risk PMs
"Beat the Benchmark"
CIOs
"Meet Liabilities"
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
FXS (temporary) inventory (net) (temporary)
FXS Cash Pooling (AMX)
IRS Equity Trading Financing Equity
Sterilization Costs P-Notes P-Repos books <books IRS Capital vs. Labour
Underfunded Pensions T-Notes T-Repos Matched Matched
"Cash"
CDS Managed FX Regimes
"Rosy" Expectations CDS … … …
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local) (global and local)

143. 143
Source: Pozsar (2014)
Four simple goals that make the eco -system go ‘round:
[3]Cash PMsaim to generate some return while fulfilling their mandate to “ do not lose”.
Cash PMs minimize credit risk by lending against collateral and are fanned by imbalances.…
Cash PMs
"Do Not Lose"
CIOs Risk PMs
"Meet Liabilities" "Beat the Benchmark"
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
FXS (temporary) inventory (net) (temporary)
FXS Cash Pooling (AMX)
IRS Equity Trading Financing Equity
Sterilization Costs P-Notes P-Repos books <books IRS Capital vs. Labour
Underfunded Pensions T-Notes T-Repos Matched Matched
"Cash"
CDS Managed FX Regimes
"Rosy" Expectations CDS … … …
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local) (global and local)

144. 144
Source: Pozsar (2014)
Four simple goals that make the eco -system go ‘round:
[4]CEOsat both the corporate and national levels are mandated to “ grow” their profits and
economies, respectively and this contributes to the skewed distribution of present incomes.…
CEOs
"Grow"
CIOs Risk PMs Cash PMs
"Meet Liabilities" "Beat the Benchmark" "Do Not Lose"
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
IRS Equity Trading Financing Equity
… … …
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local)
IRS Capital vs. Labour
(global and local)
Underfunded Pensions T-Notes T-Repos Matched
FXS (temporary) inventory (net) (temporary)
Matched
"Cash"
CDS Managed FX Regimes
"Rosy" Expectations CDS
Sterilization Costs P-Notes P-Repos books <books
FXS Cash Pooling (AMX)

145. 2. The Hierarchy of Access.
145
3. The Hierarchy of Uses. .
4. The Dealer Eco-System.
1. The Hierarchy of Money.
5. The Macro Perspective.
6. Policy Implications...

146. 146
Source: Pozsar (2014)
Implications for macro and asset price models:
These goal-driven rigidities are not included in asset price models. Topics for future
research include the extent to which these compress the 10 -year Treasury term premium.…
CEOs
"Grow"
CIOs Risk PMs Cash PMs
"Meet Liabilities" "Beat the Benchmark" "Do Not Lose"
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
IRS Equity Trading Financing Equity
… … …
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local)
IRS Capital vs. Labour
(global and local)
Underfunded Pensions T-Notes T-Repos Matched
FXS (temporary) inventory (net) (temporary)
Matched
"Cash"
CDS Managed FX Regimes
"Rosy" Expectations CDS
Sterilization Costs P-Notes P-Repos books <books
FXS Cash Pooling (AMX)

147. 147
Source: Pozsar (2014)
Implications for global macro -financial accounting:
None of these aspects of the eco -system are measured by the U.S. Flow of Funds Accounts. The
Flow of Fundsaccounts need a set of Flow of Collateral and Flow or Risksatellite accounts.…
CEOs
"Grow"
CIOs Risk PMs Cash PMs
"Meet Liabilities" "Beat the Benchmark" "Do Not Lose"
Trading Financing
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
IRS Equity Trading Financing Equity
… … …
Imbalances Imbalances
(future) (present)
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local)
IRS Capital vs. Labour
(global and local)
Underfunded Pensions T-Notes T-Repos Matched
FXS (temporary) inventory (net) (temporary)
Matched
"Cash"
CDS Managed FX Regimes
"Rosy" Expectations CDS
Sterilization Costs P-Notes P-Repos books <books
FXS Cash Pooling (AMX)

148. 148
Source: Pozsar (2014)
Implications for governance:…
Level IIILevel IILevel II Level I
?FSB?
Trading Financing
Level III
CIOs Risk PMs Cash PMs CEOs
"Meet Liabilities" "Beat the Benchmark" "Do Not Lose" "Grow"
inventory (net)
… …
Risk Dealer
(risk for collateral)
Matched Matched
booksbooks <
FXS (temporary) inventory (net) (temporary)
IRS Equity Trading Financing Equity
… … … FXS Cash Pooling (AMX)
P-Notes P-Repos books <books IRS
G20 G20
Macro Drivers Risk PM
(search for yield)
Money Dealer
(cash for collateral)
Cash PM
(search for safety)
Macro Drivers
(global and local) (global and local)
Underfunded Pensions T-Notes T-Repos Matched Matched
"Cash"
CDS Managed FX Regimes
Sterilization Costs Capital vs. Labour
"Rosy" Expectations CDS

149. 149
Conclusions:
A Macro View on Shadow Banking

150. 150
1.Bondportfoliosaregettingmoreandmoreleveragedand
bondsarebecomingmoreandmorevaluableascollateral.
2.Leveragedbondportfolioshelpasset-liabilitymatching
inanever-loweryieldenvironmentandcollateralgives
cashpoolssafetyinasystemw/anoutdatedsafetynet.
3.Credit,maturityandliquiditytransformation isastart,
butask“why”:tomanagefutureandpresentimbalances.
4.Credittransformation:bond-likevolatilityandequity-
likereturnstohelpCIOsmeetfuturepromises(“theme”).
5.Maturityandliquiditytransformation:safe,short-term
assetsforthesafekeepingofskewedincomes(“theme”).
6.RRPsareaboutmorethanjustcontrollingshortrates.
Theygiveshadowbanksaccesstoareserveaccountatthe
Fed,andareafirststeptoward“dealeroflastresort”.

151. 151
References:

152. 152
Pozsar,Zoltan,2014,“ShadowBanking:TheMoneyView,”Officeof
FinancialResearch(OFR)WorkingPaper(forthcoming).
Pozsar,Zoltan,2013,“ShadowBankingandtheGlobalFinancial
Eco-System,”VoxEU.
Mehrling,Perry,Pozsar,Zoltan,Sweeney,James,Neilson,Dan,2013,
“BagehotWasaShadowBanker:ShadowBanking,CentralBankingand
theFutureofGlobalFinance,”INETWorkingPaper.
Claessens,Stijn,Pozsar,Zoltan,Singh,Manmohan,Lev,Ratnovski2013,
“ShadowBanking:EconomicsandPolicy,”IMFSDN12/12.
Pozsar,ZoltanandMcCulley,Paul,2012,“WhyBankingWorksOneLarge
ConfidenceTrick,”FinancialTimes.
Pozsar,ZoltanandSingh,Manmohan,2011,“TheNonbank-BankNexusand
theShadowBankingSystem,”IMFWP11/289.
Pozsar,Zoltan,2011,“InstitutionalCashPoolsandtheTriffinDilemma
oftheU.S.BankingSystem,”IMFWP11/190.

153. 153
Data Appendix:

154. 0
2,000
4,000
6,000
8,000
10,000
12,000
Assets Liabilities Assets Liabilities
Q2-07 Q3-13
Loans PRBs PUBs RRs FF lent Reserves Balance DDs SDs LDs RPs GDF FF borrowed
[1]
[2]
[3]
[1]
[2]
[3] U.S. Chartered Banks:
$ billions
Source: Haver, Federal Reserve Z.1, H.8 and author’s calculations
154

155. 0
500
1,000
1,500
2,000
2,500
Assets Liabilities Assets Liabilities
Q2-07 Q3-13
Loans PRBs PUBs RRs FF lent Reserves Balance DDs SDs LDs RPs FF borrowed GDF
[1]
[2]
[3]
[4]
[1]
[2]
[3]
[4] New York Branches of Foreign Banks:
$ billions
Source: Haver, Federal Reserve Z.1, H.8 and author’s calculations
155

156. 0
500
1,000
1,500
2,000
2,500
3,000
Assets Liabilities
Q3-13
RR [o/n] SB [o/n] RR [< 30] SB [< 30] RR [30+] SB [30+] RP [o/n]
SL [o/n] RP [< 30] SL [< 30] RP [30+] SL [30+] Net financing
[1]
[2]
[3]
[4]
Securities In Securities Out
Cash Out Cash In Dealer Banks’ “Government” Trading Desks:
$ billions
Source: Haver, New York Fed (FR 2004) and author’s calculations
156

157. 0
50
100
150
200
250
Assets Liabilities
Q3-13
RR [o/n] SB [o/n] RR [term] SB [term] RP [o/n] SL [o/n] RP [term] SL [term] Net financing
[3]
[2]
[1]
Cash Out Cash In
Securities In Securities Out Dealer Banks’ “Credit” Trading Desks:
$ billions
Source: Haver, New York Fed (FR 2004) and author’s calculations
157

158. 0
100
200
300
400
500
600
700
800
900
1,000
Assets Liabilities Assets Liabilities
2007 January 2014
Repos T-Bills T-Notes w/ RM < 1 Yr. GSEs Other CNAV [o/n]
[1]
[2]
[1]
[2] Government-Only Money Funds:
$ billions
Source: Haver, SEC and author’s calculations
158

159. 0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Assets Liabilities Assets Liabilities
2007 January 2014
Repos [o/n] T-Bills T-Notes w/ RM < 1 Yr. GSEs LTDs CP Other CNAV [o/n]
[1]
[2]
[3]
[4]
[4]
[3]
[2]
[1] Prime Money Funds:
$ billions
Source: Haver, SEC and author’s calculations
159

160. 0
50
100
150
200
250
300
350
Assets Liabilities Assets Liabilities
Q2-07 Q3-13
Balance Agency RMBS Repos Mortgage REITs:
$ billions
Source: Haver, Federal Reserve Z.1
160

161. 0
1
2
3
4
5
6
7
8
9
10
Assets Liabilities Assets Liabilities
Q2-07 Q3-13
Balance U.S. dollar assets U.S. dollar liabilities Offshore Dollar Banking:
$ trillions
Source: BIS
161