Mutual Funds, Insurance, and Pension Funds

Rajesh Kumar , in Strategies of Banks and Other Financial Institutions, 2014

viii.one.9.3 Money marketplace funds

A money market fund is an open up-ended fund that invests in short-term fixed-income securities such every bit United states of america Treasury bills and commercial papers. Coin marketplace funds seek to limit exposure to losses from credit, market, and liquidity risks. Money market funds aim to maintain a stable value of $1 per share. In 2011, according to the ICI Fact Volume, there were 632 money market funds in performance with full assets of nearly Usa $2.seven trillion. Money marketplace funds consist of institutional coin funds and retail money funds. Institutional money funds are marketed to corporations and authorities bodies. These funds are characterized past high minimum investment and low-expense share classes. The largest institutional money market fund is the JPMorgan Prime Coin Market place Fund with over $100 billion in avails. Retail money funds are offered to individuals and exist in the form of regime-simply funds, nongovernment funds, and tax-free funds. The largest coin market mutual fund is Fidelity Investments Greenbacks Reserves with assets exceeding U.s. $110 billion. Rubber and liquidity are the virtually important advantages of the money market funds.

Ultrashort bond funds are mutual funds, similar to money market place funds, that invest in bonds with extremely short maturities. Money market funds consist of retail money market place funds and institutional money market funds. Institutional money market funds are used past businesses, pension funds, state and local governments, and large business relationship investors.

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Indices and the Construction of Benchmarks

Bernd R. Fischer , Russ Wermers , in Performance Evaluation and Attribution of Security Portfolios, 2013

xi.4 Money Market Indices

Money market place funds are investment funds which invest primarily in term deposits and very short-dated bonds. The benchmarks used for these funds are therefore based on the reference interest rates for the money market.

Instance 11.eight EONIA, EURIBOR, and LIBOR indices, eb.rexx Coin Market

a.

Every solar day, a group of so-called console banks report data (full book, weighted average lending charge per unit) on their overnight unsecured lending transactions in the interbank market to the European Central Bank. EONIA (Euro Overnight Index Boilerplate) is and then computed past the ECB every bit the average of these overnight lending rates 43 weighted by the respective transaction volumes.

b.

The same panel banks which quote for EONIA also report daily quotes of the rate that each panel depository financial institution believes one prime number bank is quoting to some other prime bank for interbank term deposits within the euro zone. The maturity spectrum covers one, 2 and 3 weeks every bit well as the twelve maturities from ane to twelve months. The EURIBOR (Euro Interbank Offered Charge per unit) for each maturity is calculated as the equal weighted average of the depository financial institution quotes, after eliminating the highest and lowest 15% of these quotes. 44 The so-chosen EURIBID (Euro Interbank Bid Rate) is a reference charge per unit which is not officially published but frequently used in practice. It is calculated by subtracting a specifically chosen cost charge from EURIBOR (e.grand. EURIBOR – 20 bps 45 ) and may be interpreted as the interest charge per unit at which a bank is willing to borrow from other banks.

c.

LIBOR 46 may be regarded as the counterpart to EURIBOR. LIBOR (London Interbank Offered Rate) is the average interest charge per unit offered by several commercial banks in the London interbank marketplace. Information technology is calculated for x currencies (e.m. EUR, USD, JPY). The panel banks are chosen individually for each currency. Maturities include one twenty-four hours (overnight), ane and 2 weeks, equally well as one to twelve months. Like EURIBID, LIBID (London Interbank Bid Charge per unit) is calculated in practice past subtracting an appropriate cost charge from LIBOR.

d.

Besides the above-mentioned bond indices, Deutsche Börse calculates the money market index eb.rexx Money Market, which includes highly liquid German government bonds. Eligible bonds must have a maturity between 1 calendar month and i year and an corporeality outstanding of at least EUR four billion. The bonds are market capitalization-weighted, with a maximum weight of xxx percent.

Dissimilar their equity and bond market counterparts, money market benchmarks are initially given simply in terms of interests (Figure 11.five). Therefore, the interest rate series needs to be transformed into a operation series to obtain an alphabetize which can be compared with the share price series of a portfolio. For that purpose, a given base value (east.chiliad. 100) is compounded with the i-day interest rates resulting from the interest rate series. In doing so, the applicative interest rate conventions have to be taken into account (Figure eleven.6). 47

Figure xi.5. EURIBOR and LIBOR (USD) Involvement Rates by Maturity as at 27/01/2009.

Figure 11.6. EONIA from 31 December 2005 to 31 December 2008 and the Corresponding Performance Index (left hand scale).

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Cases on Investment Management Companies

Rajesh Kumar , in Strategies of Banks and Other Financial Institutions, 2014

4.2.1.1 Coin market place mutual funds

The Vanguard Admiral Treasury Coin Marketplace Fund is a conservative investment option offered by Vanguard that invests in US Treasury securities. The fund maintains a share price of $one and the strategic objective is to provide current income to investors. The income received by shareholders depends on the current involvement charge per unit environment.

The Vanguard California Tax-Exempt Money Marketplace Fund is designed only for California residents and seeks to provide federal and California State tax-exempt income and preserve shareholders' main investment past maintaining a share price of $1. This fund is considered one of the virtually conservative investment options offered by Vanguard. Although the fund invests in brusque-term, high-quality securities, the amount of income that shareholders may receive is largely dependent on the electric current involvement rate surroundings and the availability of eligible California municipal securities. Investors in a higher tax bracket who have a brusque-term savings goal and seek a competitive tax-free yield may wish to consider this option.

The Vanguard Federal Money Market Fund and Vanguard New Bailiwick of jersey Revenue enhancement-Exempt Money Market Fund in The states government securities are also bourgeois Vanguard investment options.

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Caps/Floors and Swaptions with an Application to Mortgages

Salih Northward. Neftci , in Principles of Financial Engineering (Second Edition), 2008

Reading ii

This reading refers to Part Ii of the case study.

Dynamic funds eye dislocation opportunities

With short-term yields continuing to fall across Europe, coin market funds are increasingly targeting higher yields through structured products. Generally, they are lifting returns past selling volatility through corridor structures. (ane) More specifically, they are taking advantage of hedge fund-induced market dislocations in Danish mortgage markets and sterling swap spread markets. „In the last few weeks funds have substituted a piddling credit risk for a scrap more than market place chance" said one market professional at a major European bank. He added that funds saw the increasing confidence in financial markets as an opportunity to generate college yields from market dislocations.

In particular dealers said funds were looking to buy Danish mortgage bonds together with remainder-protected swaps (2). The remainder-protected swap guarantees the bond buyer the coupons but still leaves the holder with elapsing take a chance—the run a risk that the instrument will accept a shorter duration if prepayment increases. With unswapped Danish mortgage bonds, the holder is exposed to the hazard that prepayment rates increase and that coupons levels are reduced.

In addition to specific dislocation-related trades (three), market place professionals said at that place was a general trend for funds to motility abroad from standard commercial paper and nugget-swap investments towards higher-returning, more structured products. Whereas traditional funds purchase floating-rate instruments and are only exposed to the credit risk of the musical instrument, dynamic money market funds buy instruments that are exposed to interest rate and volatility risks.

I structurer last week said the dynamic fund sector had been growing for some time, and added that some European funds had more than funds nether management in dynamic instruments than traditional instruments. „There'southward lots of excitement surrounding coin market funds and their attempts to churn yield," he said.

Typical dynamic money marketplace fund trades are corridors, (4) with popular recent trades being based on two Libor rates remaining within the ring. One banking company structurer said he had recently traded a note that offered higher coupons, provided both US dollar Libor and French franc Libor remained inside ready limits. Upper-case letter repayment was guaranteed, but coupon payments were contingent. By buying structures such as these, funds are in event going short Libor volatility and using the earned premium to heighten their received coupon levels. (5) The size of the enhanced coupon typically depends on the width of the corridor, with actress yields of up to 200 bp generated by a tight corridor and boosted yields of around 50 bp delivered by a wider corridor. Dealers said funds preferred to be more than cautious and favored the wider corridor, lower yield products.

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Household Finance: An Emerging Field

Luigi Guiso , Paolo Sodini , in Handbook of the Economic science of Finance, 2013

A.one Definitions of Variables in the 2007 Wave of the SCF

Pension Savings: retirement savings

Current Savings: all savings that are non alimony savings

Cash , current savings in, checking accounts, coin marketplace and savings accounts, money marketplace funds, cash and call accounts at brokerages, certificates of deposits, treasuries, cash due north.eastward.c.

Fixed Income Instruments: current savings in, straight held bonds apart from treasuries, bonds held in non-pension annuities (annuities not purchased using settlements from pension accounts), bonds held in trust and managed accounts, bail funds apart from treasuries, 50% counterbalanced funds

Directly Held Disinterestedness: current savings direct held in equity (stocks)

Indirectly held equity, current savings held in disinterestedness through mutual funds, non-alimony annuities, and trust or managed accounts, l% of balanced funds

Cash Value Life Insurance: Current liquidation value of life insurance policies that build upwards a cash value. These are sometimes called "whole life", "straight life", or "universal life" policies. They are unlike from traditional "term" policies which instead pay a merits only upon early premature death.

Alimony Fixed Income: pension savings in retirement accounts and pension annuities held straight or indirectly in stock-still income instruments

Alimony equity, pension savings in retirement accounts and pension annuities held directly or indirectly in equity

Other Fiscal Wealth: other pension savings and other not-alimony annuities, other trust and managed investment accounts, futures contracts, stock options, derivatives, oil/mineral/gas leases, or other country leases, loans and debts owed to the household, deferred compensation, etc.,

Primary Residence: own business firm, lot, apartment, farm, ranch, and parts of condo, co-op, townhouse association. The category also includes mobile homes and their sites likewise as the function of the ranch that is not used for business organization purposes

Investment in Real Estate: residential and non-residential real estate which is non a function of the primary residence and that is not endemic by a concern

Other Real Estate: artworks, precious metals, jewelry, antiques, coin collections, etc.

Vehicles: all types of vehicles including motor homes (that are not master residence), boats, airplanes, etc.

Business Wealth: cyberspace equity in all kinds of privately endemic businesses, limited partnerships, and corporations that are not publicly traded. The value of the part of the farm or ranch that is used for business less associated debt is likewise included

Credit Card Debt: outstanding balance after the concluding payment was made on full general purpose cards, bank-blazon cards, shop, gasoline cards, etc.

Consumer Debt: vehicle loans, other installment loans, lines of credit other than abode equity, loans against pension and life insurance, loans made for home improvements that are non collateralized by real estate

Mortgages: mortgages on master residence, other real estate, other loans using property equally collateral, or domicile equity lines of credit, land contracts

Student Debt: loans for education attainment

Other debt, margin loans and other debt non recorded earlier

Financial Investment: alimony and current fixed income instruments, pension and current direct and indirectly held disinterestedness, greenbacks value life insurance, other trusts, and managed investment accounts, other pension savings, and pension and non-pension annuities

Electric current gross Fiscal Wealth: cash, fixed income instruments, directly and indirectly held equity, other financial avails

Retirement Wealth: alimony stock-still income and pension equity, other pension wealth

Full Gross Financial Wealth: current gross financial wealth plus retirement wealth

Gross Real Estate: primary residence, investment in real estate, other existent estate

Gross Real Wealth: gross real estate, business concern wealth, vehicles

Full Gross Wealth: total gross financial wealth, gross real wealth

Total Debt: credit carte, consumer and student debt, mortgages

Net Wealth Measures: gross wealth measures minus full debt

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The Behavior of Individual Online Investors Earlier and Later the 2007 Financial Crisis: Lessons From the French Case

Daniel Haguet , in Handbook of Investors' Beliefs During Financial Crises, 2017

20.iv.two Full general Behavior

Our file contains each individual trade per twenty-four hour period. The full of the trades was summarized on a daily ground in social club to have, for each day: the number of purchases, the number of sales, the book of the purchases, and the book of the sales. We have 766 daily observations from which we excluded Saturdays and Sundays and got 634 observations. We also have the breakdown between French stocks and money market common funds. Those could exist of interest to look at the breakdown betwixt the flows in risky assets and in nonrisky assets.

In the outset part, we will look at the general behavior of our sample, then the breakdown between stocks and money market funds. The third part will present the buy and sell transactions by number.

1.

General volume and number of transactions: Fig. 20.4 shows the volume of the purchases and sales on a monthly ground. The volume of purchases and the volume of sales are strongly correlated (correlation coefficient = 0.84) and the volume of buys is greater than the volume of sells each month.

Figure 20.4. Evolution of the Purchases and Sales in French Stocks (Volume).
ii.

Breakdown betwixt risky assets and nonrisky assets: In this section, we as well took the book of purchases and sales in money market funds (as a proxy of nonrisky asset) to compare with the volume of purchases and sales in stocks (as a proxy of risky assets). Nosotros nowadays in Figs. xx.four and 20.5, the percentage of each nugget class in the full catamenia of sales (Fig. xx.5) and purchases (Fig. 20.6).

Figure 20.5. Breakdown Between Stocks and Monetary Funds (Flow of Sales).

Figure 20.6. Breakup Between Stocks and Monetary Funds (Flow of Purchases).

On average, money marketplace funds represent ten.18% of the buy flows and 11.14% of the auction flows (the difference is nonsignificant) and a correlation coefficient equal to 0.39.

We regressed the percentage of money market fund in buy transactions and in sale transactions with two explaining variables. The first one is the daily alter of the CAC twoscore and the second one is a dummy variable equal to "one" later the financial crisis and "zero" earlier. Table 20.8 displays the coefficients.

Tabular array 20.eight. Regression of flows of coin market funds.

Explained Variable Percent Coin Market Fund in Purchase Transactions Percent Money Market place Fund in Sale Transactions
Explaining variables
Constant (t-stat) 0.100 (24.331) 0.098 (24.938)
Daily changes of the CAC 40 (t-stat) 0.341 (1.253) −0.709*** (−ii.742)
Binary variable "crisis" (t-stat) 0.015 (2.394) 0.020*** (3.391)

** and *** denote significant at the 5% and 10% levels, respectively.

The main result of Tabular array twenty.eight is that the menstruation of sales in money market place funds is influenced by the binary variable "financial crisis" merely we did non find a pregnant coefficient with the daily operation of the French market.

3.

Number of sales and number of purchases: We utilise the number of purchases and the number of sales to measure the trading behavior of our sample (Fig. twenty.seven).

Effigy 20.7. Evolution of the Number of Purchases and the Number of Sales.

The ii series are strongly correlated (correlation coefficient equal to 0.90) just we run across that the number of purchases is always greater than the number of sales. We use the ratio between the number of purchases and the number of sales to measure the trading behavior compared to the market returns. Our ii proxies for the French domestic stock market are the render of the CAC 40 on a daily basis and the same return of the CAC 40 on a continuous 12-months menstruum (annual footing). The first one gives the influence of the brusque-term return of the market place and the second one gives the influence of the long-term return of the marketplace.

Our regression is as follows:

y i = a 1 Ten 1 + a two Ten 2 + a 3 X iii + ɛ i

Where y i is the ratio between the number of purchases and the number of sales, Ten i is the daily return of the CAC forty, X two the yearly return of the CAC forty, and X 3 is a binary variable equal to ane afterwards June 2007 ("bear" period) and equal to 0 before June 2007 ("bull" menstruation). Results are displayed in Table 20.nine.

Table 20.nine. Regression on the sample as a whole.

Explained Variable Number of Purchases/Number of Sales
Explaining variables
Abiding (t-stat) 1.116 (23.799)
CAC xl daily (t-stat) −xiv.258 (−ix.097)***
CAC forty 12 months (t-stat) 49.598 (ane.324)
Binary variable "crisis" (t-stat) 0.120 (2.209)**
Number of observations 634

** and *** announce significant at the v% and 10% levels, respectively.

Only one coefficient of the regression is meaning; it shows a negative correlation between the buying and selling behavior of the whole sample and the daily changes of the CAC forty index. It means that when the render of the market place increases, the number of sales increases compared to the number of purchases. When the market return decreases, we take more purchases than sales.

The long-term return of the CAC 40 is nonsignificant for the whole sample; the binary variable "crisis" is nonsignificant besides.

Nosotros will at present wait more closely at the selling behavior of our sample in the context of the financial crunch.

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Investment Banks and Finance Companies

Rajesh Kumar , in Strategies of Banks and Other Financial Institutions, 2014

7.1.4 Investment Bank Participation in Fiscal Markets

Investment banks have active participation in the money, bond, mortgage stock, and derivatives markets. Many investment banks through money marketplace mutual funds invest in coin market place securities. Investment banks also underwrite commercial papers. Investment banks actively participate in the bond market through underwriting bail issues in the primary market and provide advisory services for clients for bond purchases and sales. Investment banks also play a role in the bond market by facilitating the raising of funds for corporate restructuring activities such equally mergers and acquisitions, leveraged buyouts, and other activities. Investment or securities firms also play a function in the mortgage market past underwriting securities that are backed past mortgages for various fiscal institutions. In stock markets, the investment banks play the major roles of underwriters in the primary market, advisors and brokers in the secondary market. In derivatives markets of futures, options and swaps, investment banks act equally financial intermediaries or brokers.

Commercial banks and austerity institutions are major competitors for investment banks in providing brokerage and merger informational services. Some investment banks own mutual funds. Mutual funds as well depend on securities firms such as investment banks for advisory services related to the execution of stock trades. Investment banks provides advisory services to insurance companies for executing securities transactions and hedging risks. Pension funds too receive advisory services from investment banks with respect to securities transactions related to buying and selling securities. Pension funds and insurance funds invest in new issues, which are underwritten past securities firms.

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Foreword

Dr. Jeffrey R. Bohn , in Credit Applied science for Bankers (2d Edition), 2011

Equally the credit markets have evolved, nonbank fiscal institutions have become an important part of credit markets. Sometimes these institutions (due east.yard., AIG, large insurance companies, big money market funds, etc.) are said to constitute a shadow banking organisation. In the previous edition's foreword, I wrote, "Engineering and deregulation take enabled nonbank financial institutions to enter the credit markets in unprecedented ways." The good news is that shadow banks add to the marketplace'south liquidity. The bad news is that shadow banks—with AIG at the middle—are also not immune to failure arising from concentration risk. Shadow banks endure from the same kinds of systemic ailments as the regular banking system. We discovered in this latest crisis that concentration adventure tin develop anywhere banking-blazon activities are undertaken. We now empathize how important information technology is for analysts and regulators to track nonbank financial institutions. Executives of these institutions volition also benefit from learning and implementing the tools discussed in this book.

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The Nature and Variety of Financial Intermediation

In Contemporary Financial Intermediation (Fourth Edition), 2019

Mutual Funds

Along with alimony funds, mutual funds take been major market place-share winners over the past 40 years. Essentially a post-Globe State of war Ii phenomenon, common funds (including money market place funds) have risen from an inconsequential share of the intermediation market in 1950 to achieve a vi% market share in 1990, and a 25% market share in 2010 (measured based on total avails). Its significant growth can too be gleaned from the penetration of common funds amongst U.S. households, which increased from 25% in 1990 to 44% in 2012 (see Table ii.2).

Mutual funds come up in two bones varieties: open- and closed-end. Closed-end funds take a preestablished number of shares and the fund'southward initial resource typically are not augmented with the subsequent auction of shares. A airtight-end fund is typically traded as a single security on organized exchanges, for example, the New York Stock Exchange, and its shares are priced directly in the market like the shares of whatever other company. Equally a effect, the market price of closed-end fund shares can deviate, ofttimes widely, from the liquidation value of the securities they agree. Open-end funds operate on very unlike rules. Their shares are continuously liquidated and augmented by a specialized management company that offers shares for greenbacks, and greenbacks for shares at cyberspace asset value (NAV). NAV is the estimated liquidation or market value of the fund'south avails divided by the number of shares the fund has outstanding. Thus, unlike airtight-end fund shares, the prices of open-finish fund shares cannot deviate from the value of underlying assets.

The open up-cease funds take given rise to large specialized fund direction companies, like Fidelity, DWS Scudder, Vanguard, and Dreyfus. Each of these manages and markets a wide range of dissimilar funds, each of which is defined in terms of specific investment objectives. These investment companies earn their proceed by levying fees confronting the funds it manages. The funds, of course, are endemic by their investors. Were yous to consult the financial pages of whatsoever major paper, you would find a section headed mutual funds wherein you could find the NAV of any of the numerous common funds managed by Merrill Lynch, or any of the very large number managed by Allegiance. These larger mutual fund companies typically have tens of billions of dollars under management. The primal fiscal intermediation services provided past common funds include transactions services, screening, and certification.

There is nothing terribly new virtually common funds, except their explosive growth in recent decades. There are at to the lowest degree three reasons for the current popularity of the funds. Start, coin-market common funds, which were introduced in the 1960s, rapidly became the instrument of selection for circumventing Regulation Q deposit involvement rate ceilings. Equally aggrandizement accelerated in the 1970s and market interest rates soared, the spread between these rates and deposit rates gaped always wider. The bloated opportunity cost of holding bank deposits increased the entreatment of money-market funds. The residue is history! Despite the competitive disadvantage of operating without a authorities guarantee, the mutual funds grew spectacularly, underscoring that there are limits to what the public is willing to pay for governmental deposit insurance.

By and large, the money-market funds were managed conservatively, and some even restricted themselves to property direct debt of the U.S. regime. More than usually, the funds held negotiable large-denomination certificates of deposit of banks, commercial paper, bankers' acceptances, mortgage, and other asset-backed securities, and government agency debt. Almost all of these assets were less than 1 year to maturity, and the funds traded at a constant one dollar per share.

Moreover, the coin-market funds are sustained past implicit guarantees of their managers. In at to the lowest degree iii cases, management companies fabricated skilful on nugget losses in guild to protect their own reputations and the viability of the money funds they managed. For example, Value Line manages a coin-market fund that held the commercial paper of Integrated Resource, a visitor that defaulted on its debt. Rather than reflect this loss in its money-market fund, which almost certainly would accept meant the fund's demise, Value Line direction bought the Integrated Resources commercial paper from its coin-market fund at par. Notably, at that place was no legal or fifty-fifty moral obligation to protect the fund'due south investors, but the activeness was presumably motivated past the want to maintain and build upon Value Line's reputation in managing coin-market place funds. Clearly, the coin-market funds offered a compelling parcel of substitutes for the governmental deposit guarantee. Low-risk investment strategies, combined with implicit guarantees of reputable management companies, and essentially higher yields permitted the coin-market funds to ravage the banking concern and austerity eolith markets and relish meteoric growth. As we volition run into in Chapter 14, the depression (or no) chance prototype got dilapidated during the 2007–2009 financial crisis. Explicit authorities guarantees were needed to ensure the survival of money market mutual funds.

The second and third reasons for the recent growth of mutual funds are less dramatic, merely nonetheless noteworthy. In recent decades, the public has gradually go persuaded of the improbability of consistently "beating" the stock market. A body of water of research, much of information technology academic, has demonstrated that over about extended spans of fourth dimension asset managers do less well than the widely watched stock market indices, for instance, Dow Jones, and Standard and Poor's. The reasons are numerous and complex, but the facts seem apparently. The widespread acceptance of this thought has had a profound effect on investment beliefs, and in item it has led to the idea that if you cannot beat the averages, you lot can practice no better than to buy the averages. Buying the averages is known every bit passive investment. This is done by purchasing a portfolio of securities that behave similar (clone) the averages. Since this strategy typically requires holding a substantial number of securities, information technology is often infeasible for smaller wealth holders, and uneconomic for most. However, mutual funds tin can provide such a service at low cost. Thus, the popularity of passive investment strategies provides a second reason for the recent growth of mutual funds.

Finally, the past half-dozen decades accept witnessed the much-heralded globalization of financial markets. Many investors believe it is as important to diversify beyond economies (currencies) equally information technology is to diversify across industries. Furthermore, diversification beyond economies has been massively simplified in recent decades, as regulatory and taxation barriers have been dismantled. Nonetheless, information about strange investment opportunities is still relatively expensive. Hence, the mutual fund has become the instrument of choice for investing away. Many "country funds" are closed-end and listed on the New York Stock Commutation, simply there are also many open-end funds that specialize in countries and regions of the globe. To mix a metaphor, as the pie of foreign indirect investment has grown larger, the bologna of specialization amid funds has been sliced ever thinner.

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The Eolith Contract, Deposit Insurance, and Shadow Banking

In Contemporary Financial Intermediation (Fourth Edition), 2019

The Office of Commercial Banks in Shadow Banking

Commercial banks become involved in shadow cyberbanking in various means. The most obvious is that commercial banks are endemic past depository financial institution belongings companies (BHCs). A BHC might own a wealth management unit of measurement with a money market mutual fund, that is, a shadow depository financial institution within the BHC. Another case is triparty repo funding by the broker–dealer subsidiary of a BHC. Similarly, a BHC might accept an ABCP conduit, which would be off-balance-sheet to the BHC, but may be supported past a commercial banking concern subsidiary of the BHC through loan commitments. 48 Another connection is that commercial banks originate the loans whose securitization creates the securities that shadow banks hold and then borrow confronting these securities which are used as collateral in repo transactions.

In the futurity, as BHCs are subjected to more than stringent and liquidity requirements, some shadow-banking activities may drift out of BHCs into the shadow-banking system.

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