Central banking, shadow banking, and infrastructural power

Abstract

Public monetary governance and private market practices are closely entangled. Monetary policy depends on private financial infrastructures. At the same time, central banks exert considerable influence on market structures and practices. This paper presents the theoretical rationale for analyzing state-finance interactions through the lens of infrastructural entanglement and infrastructural power. We then apply this perspective to two crucial cases, showing how and why the Federal Reserve and the European Central Bank advocated and actively promoted, for monetary policy purposes, the development of shadow banking and shadow money. These cases serve to illustrate our argument that financialization could not have unfolded the way it has without increased infrastructural entanglement of central banking and shadow banking.

Foreign bond investors and market discipline

“…The need for safe-assets (bonds) to serve as collateral for shadow money creation has lowered yields on sovereign debt repo with clear implications for 25 governments as well as other market participants. An extended model of sovereign bond holders should then not only distinguish between foreign and domestic, but also consider the role that shadow banks as bond holders play in the dynamics of market discipline, structural and infrastructural power (Braun and Gabor, 2019). Finally, it would be interesting to assess whether governments' interpretations of 'what investors want' is more accurate for different investor groups.…”

Doing Away with the Sovereign: Neoliberalism and the Promotion of Market Discipline in European Economic Governance

“…Indeed, during the euro crisis EU authorities protected the status of bonds as safe assets to secure the operation of interbank lending. For its part, by continuing to accept bonds as collateral and using them to conduct monetary policy (Braun and Gabor 2019), the ECB also contributes to making them safe. All this runs counter to the very logic of market discipline based on the principle of creditor risk.…”

Governing Global Liquidity: Federal Reserve Swap Lines and the International Dimension of US Monetary Policy

“…The second contribution derives from here. As recent studies have shown, central banking requires mobilising private infrastructures with oftentimes highly contingent outcomes (Walter and Wansleben 2019, Braun and Gabor 2020, Dutta 2020. By extending this line of analysis to the international level, this article locates the politics of swap interventions in the infrastructural problem of what makes the global dollar system 'governable' from the perspective of the Federal Reserve.…”