The Diary: Izabella Kaminska
The FT Alphaville reporter on attending a shadow banking workshop and speculation on the Bitcoin inventor’s identity
Some opportunities are just too exciting to turn down. For me, a workshop featuring the world’s pre-eminent experts on shadow banking, a topic every expert agrees has no actual experts in it because it’s just too shadowy, was one of them.
So it was that I — a journalist with an academic background in ancient history and no formal economic training — found myself at Boston University trying to persuade a room of academics that shadow banking isn’t all that new because the ancient Romans were doing it for generations, and that Pompey’s campaign against the Cilician pirates in 67BC could even be considered equivalent to today’s regulatory efforts to clamp down on offshore banking loopholes and off-balance sheet accounting.I’m not convinced I persuaded anyone, even if personally I’m quietly confident about my theory, but at least it made for a good distraction before lunch. Who doesn’t like to talk about pirates?
If there was a formal lesson to draw from the day’s events, though, it’s that even now nobody entirely agrees on what shadow banking is. The nearest thing to a formal definition comes from Perry Mehrling, professor of economics at Barnard College in New York City, who suggests that anything involving money market funding of capital market lending qualifies as shadow banking. For others, it’s simply lending done by any unlicensed institution, or non-bank, which doesn’t have access to “lender of last resort” liquidity in a crisis. Lending without a socialisation backstop, so to speak.
Whatever it is, we can be sure there’s rarely a situation in which shadow banking doesn’t eventually link back to the formal system, much like a shadow links to the thing that’s casting the shadow. That logic applies even to objects casting shadows while suspended in flight, because what goes up must eventually come down. The only exception being an object that detaches itself entirely from the earth and sustains itself indefinitely in flight forever . . .
Being shadow-banking geeks, our deliberations on such matters continued well into the evening, with peak enlightenment achieved probably around the moment the pens and napkins came out to demonstrate how cross-border monetary flows really work.
. . .
Quite by chance, my Boston trip coincides with the Levy Institute’s 25th Hyman P Minsky conference, which this year is asking: “Will the global economic environment constrain US growth and employment?”...MORE