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ABSTRACT
In its capacity as debt issuer, the state has played a growing role in financial life over the last 30 years. To examine this role and connect it to shadow banking, the paper develops the concept of the ‘repo trinity’, which captures a set of policy objectives that central banks outlined after the 1998 Russian crisis, the first systemic crisis of collateral-based finance. The repo trinity connected financial stability with liquid government bond markets and free repo markets. It further reinforced the dominance of the US government bond market as institutional template for states adjusting to a world of independent central banks, market-based financing and global competition for liquidity. Central banks and the Financial Stability Board recognized the impossible nature of the trinity after 2008, attributing cyclical leverage (financial instability) and elusive liquidity in collateral markets to deregulated repo markets, markets systemic to shadow banking. The new approach triggered radical changes in crisis central banking but has not powered significant regulatory interventions in the absence of an alternative mode of organizing government bond markets.
ACKNOWLEDGEMENTS
The author wishes to thank Cornel Ban, Oddny Helgadottir, Mark Blyth, Marina Hubner, Anninna Kaltenbrunner, Matthias Thiemann, Jakob Vestergaard, participants at the Shadow Banking workshop at Boston University, the editors and the anonymous reviewers for constructive feedback and suggestions on previous drafts. All remaining errors are hers.
Notes
1. http://www.telegraph.co.uk/finance/mark-carney/11367570/Mark-Carney-warns-of-liquidity-storm-as global-currency-system-turns-upside-down.html.
Additional information
Notes on contributors
Daniela Gabor
Daniela Gabor is an associate professor of economics at UWE Bristol.