Otherwise disruptions could materially impair the supply of credit (and equity) to the economy, with macroeconomic and other welfare costs. When the securitisation markets closed in the USA, it was not realistic for that part of the credit system to be reintermediated by the banking system in short order. The essential ingredients of a resilient market include a robust post-trade infrastructure for clearing and settlement. But trading platforms matter too, as do disclosure standards, and even the pattern of demand. In my book, a market is unlikely to be resiliently liquid if demand is almost entirely from leveraged investors and traders: not only do they vanish when prices stop rising, but prices are then subject to the sudden force of gravity. Much of the  3  Anil Kashyap, Raghuram Rajan and Jeremy Stein, “Banks as liquidity providers: an explanation for the coexistence of lending and deposit-taking”, Journal of Finance, February 2002. 4  See “Shadow Banking, Financing Markets and Financial Stability”, Tucker, January 2010. The Financial Stability Board released a first paper on Shadow Banking earlier this week. 4  BIS central bankers’ speeches  securitisation markets would have failed those tests from around the middle of the past decade. That is a lesson we and our successors will need to recall when contemplating future innovations. Over time the Financial Policy Committee will need to consider whether, as a matter of fact, core capital markets in the UK are sufficiently resilient for stability to be preserved in stressed conditions.
However, the treatment of OFCs varies a lot across the G718, and so their data are not strictly comparable with the UK M4 numbers. More important, so far as I can tell, most current calculations of world money growth19 simply add up domestic money supplies, and so leave out cross-border money holdings. That might be a material omission. For example, external holdings of sterling deposits with the UK banking system have increased by more than domestic money since the late 1990s; and by around 15% over the past year. How much of this growth is attributable to non-bank financial groups, whether based in the UK or overseas, is not known. Like much of the monetary analysis of the early 1980s, I fear that this is rather inconclusive, other than underlining that one has to get one’s hands dirty in analysing the money numbers. It is plausible that a decent chunk of recent UK M4 growth should be seen in the light of structural change in the financial system. Essentially, some types of non-bank financial intermediation have become more significant, and seem to have entailed higher money holdings on the definitions currently employed. If so, recent OFC money growth does not of itself obviously have malign implications for money spending and inflation. Originate and distribute: what’s going on on bank balance sheets? Much of the debate about this renewed process of disintermediation has revolved around whether the burgeoning growth of, for example, structured credit vehicles and hedge funds increases or impairs the resilience of the system.