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Shadow money and the public money supply: the impact of the 2007-2009 financial crisis on the monetary system

Murau, S. ORCID: 0000-0002-3460-0026 (2017). Shadow money and the public money supply: the impact of the 2007-2009 financial crisis on the monetary system. Review of International Political Economy, 24(5), pp. 802-838. doi: 10.1080/09692290.2017.1325765

Abstract

This article explores the effects of the political reactions to the 2007–2009 financial crisis on the monetary system. It chimes in with the view that shadow banks create ‘shadow money’, i.e. private substitutes for bank deposits. The article analyses how the three main forms of shadow money – money market fund shares, overnight repurchase agreements and asset-backed commercial papers – were affected by the short-term government intervention and medium-term regulation during and after the 2007–2009 financial crisis in the United States. The analysis reveals that the measures taken between 2007 and 2014 integrated some shadow money forms in the public money supply. In the year after the Lehman collapse, the initially private shadow money supply was either publicly backstopped or de-monetised as it had broken par to bank deposits. The public backstops took on the form of emergency facilities established by the Federal Reserve and guarantees proclaimed by the Treasury. Those backstops imply that the public institutional framework to protect bank deposits was extended to some forms of shadow money during the crisis. This tendency has continued in post-crisis regulation. Accordingly, the 2007–2009 financial crisis has triggered a paradigmatic change in the monetary system, attributable to the political decisions of US authorities.

Publication Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in Review of International Political Economy on 17 May 2017, available online: https://doi.org/10.1080/09692290.2017.1325765.
Publisher Keywords: Shadow banking; ABCPs; repurchase agreements; money market fund shares; Federal Reserve; Treasury; reverse repo facility; crisis intervention; financial regulation; functionalism
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
H Social Sciences > HN Social history and conditions. Social problems. Social reform
J Political Science > JA Political science (General)
Departments: School of Arts & Social Sciences > International Politics
Date Deposited: 26 Nov 2020 11:48
URI: https://openaccess.city.ac.uk/id/eprint/25096
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