Financial Crisis and Information Gaps

Michael Gibson

Federal Reserve Board

July 8, 2009

This presentation represents the views of the author and should not be interpreted as reflecting the views of the Board of

Governors of the Federal Reserve System or other members of its staff.

3 stages of crisis

1. Subprime

2. Liquidity and deleveraging

3. Global shock to confidence

Information gaps: where to focus?

1. Subprime

2. Liquidity and deleveraging

3. Global shock to confidence

Liquidity and leverage: where were the data gaps?

• “Shadow banking system”

– Maturity transformation and credit-risk-taking off the balance sheets of banks

Elements of shadow banking system

– ABCP ($1.2 trillion)– Money market mutual funds ($3 trillion)– SIVs ($400 billion)– Repo markets ($5 trillion)– GSEs ($1.7 trillion)– Auction-rate securities ($300 billion)

Shadow banking system in stress

• Maturity mismatch led to runs• Some elements disappeared

– SIVs– Auction-rate securities

• Some received extraordinary support– ABCP– MMMF– Repo– GSEs

How to close the data gaps?

• Improve statistics on intermediation outside the banking system– Shadow banking system– Securitization– Hedge funds

• Goal: track broad trends