The Shadow Banking System - Conceptualized, designed, and created by Zoltan Pozsar

Oct 13, 2026

Upload by Adam

The material outlines the architecture of the shadow banking system as a parallel counterpart to traditional banking. It contrasts ultimate borrowers, creditors, and funding channels, mapping loans, assets, equity, deposits, and collateral flows. The document breaks down short-term funding using checking accounts, CDs, and money market portfolios, then expands into structured financing stages such as loan origination, warehousing, ABS issuance, CDO issuance, and intermediation, including guarantees and implicit insurance mechanisms.

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The Shadow Banking System

Traditional vs. Shadow Banking Flows

Funding, Deposits, Equity, and Collateral

Structured Stages: Origination to Intermediation

` The Shadow Banking System Conceptualized, designed, and created by Zoltan Pozsar The Traditional Banking System Ultimate Bo rowers Households, Businesses, Governments Loans Assets Bonds Equity Borrowers Assets Loans Commercial Banks Dollar Loans Deposits Equity T raditional Banks' Lending Process The Traditional Banking System ( "Originate- -to Hold-to-Maturity-and-Fund-with-Deposits") Short-Term Funding Deposits Loans Checking Accounts CDs Equity Funding Bank Equity Loans Bank Equity Debt Funding (Short and Long-Term Deposits Equity Funding Depositors Deposits Equity Real Money Accounts* Bank Equity Client Funds *Asset Managers, Insurance Companies and Pension Funds Short-to Long-Term Cash Money Market " Portfolios" Checking Account MMDAs CDs ShortTerm Savings Long-Term Investments Equity Portfolios Bank Term Equity Savings Ultimate Creditors Households, Businesses and the Rest ofthe World Discount Window Agency Debt Purchases Agency MBS Purchases Agency Debt Purchases ` Loan Collateral Reserves Agency Debt Reserves 11/25/2008 Agency MBS Reserves 11/25/2008 Agency Debt Reserves 11/25/2008 Deposit Insurance (FDIC) FDIC Insurance Premia Deposit Insurance Equity Federal Government No Explicit Fees Implicit Insurance GSEs, DoE , SBA Federal Government No Explicit Fees Implicit Insurance No Explicit Fees Implicit Insurance European Sovereign and Quasi-Sovereign States No Explicit Fees Implicit Insurance Public Risk Repositories Public Credit T ransformation (Tail Risk Absorption) Public Risk Repositories (Tail Risk Absorption) Temporary MMMF Guarantee No Explicit Fees MMMF Insurance PBGC Insurance Premia Implicit Insurance 9/18/2008 *Funded by UST's $50 billion Exchange Stabilization Fund The "Cash" Shadow Banking System Ultimate Bo rowers " Prime" Homeowners Households Loans Assets Equity 1 st Lien Home Equity Subprime Homeowners 1 st Lien Home 2nd Lien Consumers Goods & Loans Services Businesses Investments C&I Loans N onfinancial Businesses Loans Assets Bonds Equity Businesses CRE CRE Loans Private Equity Portfolio Companies Firms LBO Loans Deposit Insurance (FDIC) Step (1): Loan Origination Commercial Bank* Dollar Loans Deposits ABCP Repo Securities LTD Equity *FHC affiliate Finance Company* CP ABCP BDP Loans MTNs Equity *FHC affiliate Liability Insurance (Federal Government) Step (2): Loan Warehousing Step (3): ABS Issuance Fannie and Freddie* TBA Market FH LBs Loans Single-Seller Conduit Loans ABCP O/C Single-Seller Conduit Discount Notes Agency Debt Equity Multi-Seller Conduit* (Warehouse and Term) Loans ABCP O/C *FHC affiliated Broker-Dealer* Structuring and Syndication *FHC affiliate Loans ABCP O/C Multi-Seller Conduit* (Warehouse and Term) Loans ABCP O/C *European bank affiliated Credit Insurance (GSEs, DoE, SBA) Agency MBS Loans* Agency PassThrough s *Conforming mortgages FFELP ABS A1 Loans* AAA AA-BBB Equity *Conforming student loans SBA ABS Loans* A1 AAA AA-BBB Equity *Conforming SBA loans Subprime, RMBS, CMBS A1 Loans AAA AA-BBB Equity High-Yield CLOs (LBO Loans) Loans A1 AAA AA-BBB Equity Consumer ABS (Credit Card ABS) Loans A1 AAA AA-BBB Equity Step (4): ABS Warehousing Trading Books AA-BBB Repos Haircuts Repo Conduits Reverse Repos* ABCP O/C Hybrid Conduits AA-BBB ABCP O/C Hybrid Conduits (ABS Warehouse Conduits) AA-BBB ABCP O/C Step (5): ABS CDO Issuance High-Grade CDOs Supers AA-A AAAAA-BBB Equity Mezzanine CDOs Supers BBB AAAAA-BBB Equity Liability Insurance (Federal Government) Liability Insurance (EU Government) Step (6): ABS "Intermediation" Of-Balance

FAQs

How does the document compare traditional banking and shadow banking?

It contrasts ultimate borrowers, creditors, and the funding mechanisms, linking loans and assets to deposits and equity in traditional banking, while presenting collateral- and securities-based funding pathways in shadow banking.

What are the main funding channels described for the shadow banking system?

The text emphasizes short-term funding through deposits, checking accounts, CDs, and money-market portfolios, then extends to securities-linked funding such as repos, ABCP, and other off-balance-sheet and on-balance-sheet structures.

Which structured financing steps are listed in the material?

It enumerates stages including loan origination, loan warehousing, ABS issuance, ABS warehousing, ABS CDO issuance, and ABS intermediation.

Oct 13, 2026

Upload by Adam