07 May 2015

Economics Research
http://www.credit-suisse.com/researchandanalytics

Global Money Notes # 1

Research Analysts
Zoltan Pozsar
212 538 3779
zoltan.pozsar@credit-suisse.com
James Sweeney
212 538 4648
james.sweeney@credit-suisse.com

The Money Market Under Government Control

The Feds new Reverse Repo (RRP) facility could get big very big as
interest rates start to rise, despite what Fed officials have been saying. The
facility has been trending around $150bn, roughly 1/20th of the level of bank
reserves.
A much larger RRP facility think north of a trillion would represent the endpoint of an evolution that began before the crisis, when large dealer repo books
stood between institutional cash pools and leveraged carry trade investors to
after the crisis, when bank balance sheets were expanded by both reserve
assets and deposit liabilities created by QE to
the future, when government-only money funds grow to hold large volumes of
RRPs as assets and issue fixed-NAV shares (money) to institutional cash pools.
What are institutional cash pools? Think corporate treasuries and the cash
desks of asset managers and FX reserve managers. Their demand for shortterm, money-like assets has had a strong secular growth for several decades.
New regulations have constrained some investors in terms of what they can
buy, and many institutions, in terms of what they can (profitably) issue.
History shows that when financial innovation occurs or rules change, the least
constrained players grow.
In contrast to banks and dealers that face various charges on capital and
balance sheet, and prime funds whose shares have lost moneyness due to
regulation, government funds are relatively unconstrained.
They will likely grow, fed by an RRP facility that may grow much larger and
become a permanent fixture of the financial system. In our view, this would
herald the arrival of an era of financial RRPression in the US money market
where the sovereign dominates and dealers play a supporting role the inverse
of the pre-crisis state of affairs.
While this shift would undoubtedly reap massive financial stability benefits, the
main reason why the RRP facility might need to get much bigger is not financial
stability related, but rather revolves around the Feds potential inability to control
short-term interest rates in an era where Basel III and banks satiated with
excess reserves hinder monetary transmission.
Why pay attention to this plumbing stuff?
Because the infrastructure of markets determines which trades can profitably be
done, and which institutions will grow in importance over time.
This piece marks a return to our prior focus on shadow banking and the global
financial system (see references at the end).

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES AND
ANALYST CERTIFICATIONS.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

BEYOND INFORMATION
Client-Driven Solutions, Insights, and Access

07 May 2015

Circumstances rule central banks. And the current circumstances include new regulations,
banks satiated with reserves, and institutional cash pools that are still large and growing.
Institutional cash pools, the short-term debt portfolios of asset managers and corporate
treasuries, have experienced strong secular growth in recent decades. Since 2000, they
have grown from $1tn to $7tn. Their ascent has played a key role in shaping the global
financial system. In particular, it drove the rise of wholesale funding markets on the one
hand and carry trading on the other and the associated rise in the fragility of the system.1
The 2008-2009 crisis marked a structural shift in how the money demand of cash pools is
intermediated. Intermediation shifted from private balance sheets to the balance sheet of
the sovereign. The untold story behind the changes in the money market since 2008 is
policymakers struggle to find a permanent home for the money demand of cash pools in a
financially stable manner that is also consistent with control over short-term interest rates.

From Private Carry to Public Carry

Before 2008, broker-dealer balance sheets had virtually unlimited elasticity and were the
main source of short-term debt supply, with $4.5 trillion in repos outstanding at the peak.
Broker-dealers manufactured these short-term assets by financing (predominantly)
"safe," long-term assets such as US Treasuries and agency RMBS for leveraged bond
portfolios. They reused these securities through their matched repo books for their own
funding. Cash pools held dealer repos directly or indirectly through money funds (see
Exhibit 1).

Exhibit 1: Pre-Crisis System of Private Carry and Private Money Dealing

Cash pools direct and indirect holdings of repo

"Carry Trading"

"Money Dealing"

Bond Portfolios
(private carry)

Broker-Dealers
(matched books)

Bonds

Repo

Repo

Repo

Money Funds
(prime/government)
Repo

$1 NAV

Cash Pools
$1 NAV
Repo

Source: Credit Suisse

After the crisis, dealers repo books shrank, and the Fed became the marginal source of
supply of short-term assets through its $2.8 trillion increase in bank reserves. The Fed
manufactured short-term assets by purchasing US Treasuries and agency RMBS and
paying for them with newly created reserves.
Operationally, quantitative easing (QE) involves four parties: the Fed, dealers, banks, and
asset managers. The Fed purchases bonds from asset managers through dealers. Bond
owners are credited with bank deposits. Bond owners bank balance sheets increase on
both sides: assets rise in the form of reserves; liabilities rise in the form of deposits.2
Meanwhile, the crisis brought about a massive decline in dealers repo liabilities. This was
initially due to crisis deleveraging, but was later enforced by regulation (Basel III).

Global Money Notes # 1

See "Institutional Cash Pools and the Triffin Dilemma of the US Banking System" by Zoltan Pozsar (IMF, 2011).

If the Fed had bought bonds from banks directly, deposits (M1) would not have risen, because one form of bank assets (bonds)
would simply offset another (reserves).

07 May 2015

Exhibit 2: Tectonic Shifts in the US Money Market

Short-term sovereign claims substitute dealer repos to accommodate the secular trend growth of cash pools, $ trillion
7

1
00

01

02

03

04

05

06

07

08

Securities Out (Fed eligible collateral)

09

10

11

12

13

14

15

16

Reserves plus short-term U.S. Treasuries

Source: Federal Reserve, U.S. Treasury, Haver Analytics, Credit Suisse

As the level of dealer repos fell, the level of reserves rose. The increase in reserves drove
an increase in deposits and other bank liabilities. The Feds massive new carry trade was
an offset to shrunken leveraged bond portfolios. As the shadow banking system 3 shrank,
the traditional banking system grew. 4 Exhibit 2 shows the uninterrupted growth of
institutional cash pools along their pre-crisis trend. The growth in reserve balances and
Treasury bills (government money-like assets) took off when repo collapsed. Interestingly,
government short-term debt appears to be riding the same trend as repo did pre-crisis.
Money dealing the high volume, low margin business of borrowing and lending in shortterm markets is being done by various entities in Exhibits 1 and 3. But what is clear is
the migration of the money-dealing function from dealer balance sheets to traditional
banks and the migration of carry trading from bond portfolios to the Feds balance sheet.
In these charts we see alternative systems of intermediated flows from savers to
borrowers. Compared to the pre-crisis state of affairs, the role of borrower shifted from the
private sector (bond portfolios earning profits from private carry trades) to the public sector
(the Feds seigniorage revenues/profits from its public carry trades).
Regulatory reform since the crisis enshrined these changes. Broker-dealers footprint as
money dealers permanently shrank, as costs became prohibitive.
But the new rules made money dealing costly for banks too.

Global Money Notes # 1

We define shadow banking as "money market funding of capital market lending." See "Bagehot was a Shadow Banker" by Perry
Mehrling, Zoltan Pozsar, James Sweeney and Daniel Neilson (INET, 2013)
NB: This is a one example of the many important offsetting phenomena which characterize the financial system.

07 May 2015

Exhibit 3: Post-Crisis System of Public Carry and Public Money Dealing

Cash pools indirect holdings of reserves

Federal Reserve
(public carry)
Bonds

Reserves

Federal Reserve
(public carry)
Bonds

Reserves

Foreign Banks
(matched books)
Reserves

Repo
CD
CP

Money Funds
(prime)
Repo
CD
CP

U.S. Banks
(matched books)
Reserves

Deposits

$1 NAV

Cash Pools
$1 NAV

Cash Pools
Deposits

Source: Credit Suisse

However, because only banks can hold reserves, the banking system is stuck with the
new regulatory costs of money dealing. Depressed net interest margins and returns on
equity are the result along with a banking system resolute to minimize these drags. This
structural shock to the profitability of the banking system is a likely impetus to change.
As always, changes will involve arbitrage. Not an arbitrage of Basel III (which is nearimpossible due to the new accords scope and invasiveness), but of the spirit of the
Federal Reserve Act, by allowing access to Fed liabilities to entities the Act does not
permit to hold reserves.
This arbitrage will intertwine the balance sheets of the Fed and money funds. A rapidly
growing and ultimately permanent RRP facility will be the link, in an awkward marriage of
necessity intended to help the Fed maintain precise control of short-term interest rates.

Basel III Disrupts Arbitrage

Exhibit 4 shows several short-term interest rates: the Feds interest on excess reserves
(IOER), the federal funds rate, the overnight (Fed) reverse repo (RRP) rate, the overnight
GC repo rate, and the overnight AA financial commercial paper rate.
Some market participants have no choice but to lend money to banks at rates less than
the Fed pays in IOER. This shows that the Feds interest rate on excess reserves (IOER)
has not been an effective floor to short-term interest rates.
The reasons for that require some key institutional details.
Banks were force-fed the excess reserve balances created by QE. They did not demand
those reserves, and so are satiated with them. The actual holding of reserves is highly
uneven across banks, with the largest US banks (and in particular the two clearing banks)
holding a disproportionate share, and foreign banks holding the rest (see Exhibit 5).
Regulations make it costly for banks to hold reserves, limiting their appetite to pay up for
funding. Reserves count against banks leverage caps, and the largest US banks have to
hold 6% capital against them thats 6% capital against riskless arbitrage trades earning
slivers of basis points in spread and involving what is considered the safest possible
counterparty. For US banks there is a further FDIC fee increasing costs even further.

Global Money Notes # 1

07 May 2015

The interaction between reserves satiation and regulation means the Feds control over
short-term interest rates may be less than it used to be. Because reserves are the
marginal supply of short-term assets post-crisis and because cash pools can hold these
reserves only indirectly through the balance sheet of banks, banks maintain absolute
control over what share of IOER flows through to cash pools and by extension the
extent to which higher IOER rates (once the Fed begins to hike) will flow through to
financial conditions more broadly.
The Fed new reverse repo (RRP) facility regains control over short-term interest rates by
allowing money funds to bypass banks and invest cash with the Fed directly (see Exhibit
6). Think of it as a buffer in case banks intent on minimizing the post-crisis costs of money
dealing fail to pass on higher rates to their funding providers.
It can also be thought of as direct access to the Feds balance sheet for shadow banks.
This is the arbitrage of the spirit of the Federal Reserve Act we mentioned above.
An arbitrage because the Act allows reserve accounts to be held only by traditional banks.
But as banks became bottlenecks in the monetary transmission process a broader access
to the Feds balance sheet became necessary. This was possible only through arbitrage
the creation of quasi reserve accounts for shadow banks in the form of RRPs.

Exhibit 4: Basel III Disrupts Arbitrage, Clogs Monetary Transmission

% per annum
0.30

0.25

0.20

0.15

0.10

0.05

0.00
13

14
FF effective

o/n RRPs

15
GCF repo

AA financial CP

IOER

Source: Haver Analytics, Credit Suisse

Global Money Notes # 1

07 May 2015

Exhibit 5: Excess Reserves Burden Predominantly G-SIBs

Excess reserves, $ trillion
2.5

2.0

1.5

1.0

0.5

0.0
Total
U.S. banks

Banks by type

NY branches of foreign banks

JPM

WFB

U.S. banks by name

BoA

SST

BoNY

Citi

GS

HSBC

MS

Source: Call Reports, Haver Analytics, Credit Suisse

Exhibit 6: Enter the RRP Facility Unclogging Monetary Transmission

Streamlining the money dealing process and getting around the depressed funding rates offered by banks.

"Carry Trading"

"Money Dealing"

Federal Reserve
(public carry)

Banks
(matched books)

Bonds

Reserves

Reserves

Repo
CD
CP

Federal Reserve
(public carry)

Money Funds
(matched books)

Bonds

RRPs

RRPs

$1 NAV

Money Funds
(prime)
Repo
CD
CP

$1 NAV

Cash Pools
$1 NAV

Cash Pools
$1 NAV

Source: Credit Suisse

Global Money Notes # 1

07 May 2015

The Money Dealing Hot Potato

The RRP facility is policymakers latest attempt to create a redoubtable money market. So
far, the overnight RRP facility has helped firm up short-term interest successfully.
But maintaining control over short-term interest rates as policy is tightening will be
challenging if the RRP facility does not grow significantly. As discussed above, banks
might not pass on higher interest rates to their funding providers. If they dont, cash pools
will attempt to leave banks and look for higher-yielding RRPs. Getting the size of RRP
issuance right is tricky: as we have emphasized, whenever one component of short-term
markets grows or shrinks, something will have to offset it.
Exhibit 7 shows the money dealing function being passed around like a hot potato. Before
the financial crisis, broker-dealers practiced money dealing through a matched book repo.
However, dealers eventually facilitated so much risk transformation that it exposed the
system to fire sale and run risks. Later, banks became the dominant money dealers,
funding massive volumes of maturity transformation on the balance sheet of the Fed.
While this change reduced risks of private maturity transformation, reforms made it so
costly for banks that the Feds ability to control short-term interest rates came into question.
Eventually, we expect a massive and permanent overnight RRP facility, with governmentonly money funds emerging as the ultimate home of money dealing. Money market funds
in many ways are anathema to central bankers. But to regain control over short-term
interest rates they deal with them directly: the marriage of necessity will occur.

Exhibit 7: In Search of a Home

The total volume of money dealing conducted by various intermediaries over time, $ trillion
3.0

2.5

Money dealing migrates

from dealers to banks...

... and ultimately from banks to

government-only money funds.

2.0

1.5

1.0

0.5

0.0
Broker-Dealers
(repos funding private carry trades)

Banks
Money funds
(reserves funding the Fed's carry trades) (RRPs funding the Fed's carry trades)

Pre-Crisis (2007Q2)

Today (2014Q4)

Tomorrow? (2016Q4)

Source: Federal Reserve, Haver, Credit Suisse

Of course, this is not the Feds stated policy script. According to the latest minutes, the
FOMC intends the RRP facility to be a temporary feature and expects that it will be
appropriate to reduce the capacity of the facility soon after it commences policy firming.

Global Money Notes # 1

07 May 2015

We disagree. The facility has already evolved in ways that are inconsistent with the
FOMCs initial goals. Its size is now limited, but the latest FOMC minutes suggest a
potential suspension of the cap during lift-off (albeit on a temporary basis).
Exhibit 8 illustrates the migration of money dealing to government-only money funds in this
possible future state of the world. New rules force banks, dealers, and prime funds to
shrink their short-term issuance. Government-only funds, in contrast, are relatively
unconstrained; we think they will grow and become the key money dealers in the system.
A much larger or full allotment RRP facility could make this happen.

Exhibit 8: Will the Fed Respond to Bulging Demand?

Regulatory constraints all point toward a dramatic supply response from the Fed.

Bonds

Foreign Banks
(matched books)

Reserves

Reserves

Federal Reserve
(public carry)
Bonds

Repo
CD
CP

Money Funds
(prime)
Repo
CD
CP

Basel III, IHC (Fed),

Money fund
reforms (SEC)

Reserves

Cash Pools
$1 NAV

$1 NAV

quarterly average accounting.

U.S. Banks
(matched books)

Reserves

Cash Pools
Deposits

Deposits

Private Money Dealing

Federal Reserve
(public carry)

Basel III, FDIC fees,

G-SIFI surcharges (Fed)

Bonds

RRPs

Money Funds
(government-only)
-?

RRPs

$1 NAV

Caps on RRPs

No regulatory constraints.

(self-imposed by the FOMC)

Only product availability constraints.

Cash Pools

$1 NAV

Public Money Dealing

Federal Reserve
(public carry)

Source: Credit Suisse

US banks, the New York branches of foreign banks, and prime funds have good reasons
to pare their money-dealing activities.
Capital timetables for both US and non-US banks are ramping up with the phase-in of the
Basel III accords capital conservation buffers and countercyclical capital buffers, as well
as Feds G-SIB5 surcharges starting to get phased in 2016 and ramping up through 2019.
A major US bank recently announced plans to shed $100 billion in non-operating deposits
(and an equivalent amount of reserves) - just weeks after it emerged that it was the only
US bank with a capital shortfall ($20 billion short once G-SIB surcharges are factored in).
Since raising more capital without shedding low margin money dealing would dilute the
banks RoE, it opted to reduce its money-dealing activities by trying to shed non-operating
deposits by imposing fees on them or by engaging in a dialogue with clients to move them.

Global Money Notes # 1

G-SIB = Global Systemically Important Bank

07 May 2015

A bank can only reduce its reserve holdings by shifting them and their dilutive burden
to another bank. Only the Fed can extinguish reserves and non-operating deposits, either
by shrinking its balance sheet or by increasing the RRP facility.
Unless this happens, incentives will increase for banks to chase excess reserves off their
balance sheets via imposing fees on deposits and/or offering depressed rates on their
liabilities just as the Fed is hiking rates. The New York branches of foreign banks which
collectively hold just over $800 billion in reserves will soon join US banks in trying to
shrink their money dealing activities as the Fed will require them to establish separately
capitalized intermediate holding companies and face more stringent leverage reporting
requirements. Both will raise the burden of money dealing for foreign banks.
These are major factors which could complicate the Feds attempt to raise interest rates.
Furthermore, the SECs money market reforms mandate that institutional class prime
funds float their net asset value (NAV) by October 2016. Government-only money funds
may retain a stable NAV. This will incentivize cash pools to reallocate from prime to
government-only funds. New rules end prime funds as we know them: going forward,
prime funds will be viewed as a short-term yield product, not a short-term liquidity product.
Cash pools reallocation from institutional-class prime to government-only funds has
already begun. It is getting an early tailwind from the voluntary conversion of prime money
funds into government-only money funds by several large asset managers.
Exhibit 8 shows cash pools crowding into government-only money funds the only
balance sheets in the financial ecosystem not subject to new regulatory constraints.
A very large supply of RRPs will be needed to accommodate the demand for government
fund liabilities from cash pools. Potential alternatives, such as Treasury bills and dealer
repo, are unlikely to grow meaningfully unless the US Treasury makes dramatic changes
to its debt management strategy or the bite of Basel III is reduced, which is unlikely.
In the extreme, the RRP facility could facilitate shifting the funding of the entire Fed
portfolio onto the balance sheet of government-only money funds. This would help reduce
reserve balances back to pre-crisis levels sooner than the market thinks, and enable the
Fed to achieve its aim to get back to its old operating regime of targeting the level of the
fed funds rate (as opposed to targeting a target range for the fed funds rate at present).
In this sense, if IOER is a magnet, the RRP facility is a dam, keeping excess reserves
outside of the banking system and on the balance sheet of money funds. This could help
interbank markets return to normalcy and provide a safer way to absorb the money
demand of institutional cash pools compared with the pre-crisis shadow banking system.
Swapping excess reserves for RRPs on a large scale is unlikely to do anything dramatic to
the flow of long-term credit in the economy. If RRPs are uncapped and demand for them
soars, all that will happen (as a matter of double-entry bookkeeping) is that bank balance
sheets will shrink and government money fund balance sheets will grow in equal amounts.
As reserves are swapped for RRPs, cash pools holdings switch from bank liabilities to
government-only money fund liabilities. About the only major change in this configuration
is that more of the profits from money dealing will flow to money funds and less to banks.
The only link to the real economy in these chains is through the SOMA portfolios Treasury
and RMBS holdings, the funding of which is unaffected by swapping reserves for RRPs. If
anything, it would only get cheaper as RRPs pay only a fraction of the 25 bps offered on
excess reserves, boosting the Feds remittances (seigniorage revenues) to the Treasury.

Global Money Notes # 1

07 May 2015

Between Monetary Control and a Small Balance Sheet

Once again, we emphasize the nature of the financial ecosystem, where any new growth
or reduction prompts an offset elsewhere for every action there is a reaction.
Fed RRPs, Treasury bills, and dealer repos are close substitutes and forms of money.
The crisis showed that their relative supplies matter.
Perhaps markets will not be permitted to determine that again in our lifetimes.
If this is the case, we will have to adapt to a sovereign thats going to be a larger and more
active (or rather, more activist) participant in the wholesale money market than before.
This implies that the sovereign may choose to accommodate some share of the growing
money demand of cash pools on its balance sheet if it deems the volume of private or
shadow money creation to be excessive and posing a risk to financial stability.
Accommodating some share of cash pools money demand through a rising and
permanent stock of RRPs would be similar to a central bank increasing the supply of
currency to accommodate the growing money demand of households as the economy
grows a basic feature of all monetary systems.
We make little fuss about accommodating currency demand along a trend, perhaps
because we are more familiar with the image of central banks accommodating the money
demand of households than with the image of central banks accommodating the money
demand of institutional cash pools by issuing RRPs. Economically they are the same.
If the Feds balance sheet never shrinks much, cash pools will have migrated from funding
broker-dealers (pre-crisis) to funding the sovereign (post-crisis). The composition of the
money fund complex will have shifted from mostly prime (pre-crisis) to mostly governmentonly money funds (post-crisis). And the supply of short-term assets will have shifted from
mostly shadow or private money (pre-crisis) to mostly public money (post-crisis).
And as the sovereign replaces banks and shadow banks as the dominant borrower in the
wholesale money markets, risks to financial stability will decrease (as more money will be
public and less will be private). And the Fed will have delivered on its financial stability
mandate not by vigilance over systemic risks, but by increasing the supply of public money
through its balance sheet. This echoes the 1940s experience, which left US banks with
large holdings of Treasury bills, and without any major crises for several decades.
The size of bank holding companies, and hence their profits and RoEs, are checked by
global capital, liquidity, funding and leverage rules, which have reduced balance sheet
elasticity. As intermediaries are less flexible in their ability to furnish elastic currency,
someone else will have to do it instead and that wont be Bitcoin but the sovereign.
The secular rise of cash pools coincided with the three-decade trend toward lower interest
rates. Although many investors target certain yield and return levels because of
institutional arrangements, low yields did not eventually lead to sufficient issuance in longterm debt to steepen yield curves and attract savings out of cash pools (which were
targeting short-term paper) and into intermediate and long-term debt. Perhaps the
elasticity of dealer balance sheet before the crisis served to supply the leverage (via repo)
to target higher returns in a low yield world (as an alternative to higher long-term issuance).
One long-term development, then, that could come from restrained balance sheets would
be increased long-term issuance, increased long-term all-in yields for credit products, and
a migration of savings toward longer-term securities. There are some signs of this already
happening. And regulation may encourage this too. For example, new rules are forcing
many banks to term out their debt issuance, increasing the supply of long-term credit.

Global Money Notes # 1

10

07 May 2015

In the meantime, however, we think government issuance is more likely to satisfy the
demand of cash pools, not a large increase in long-term credit that drives up the yields
and attractiveness of longer-term securities (traditionally bonds) relative to short-term
securities (traditionally money).
For the Fed to get back to targeting a level for the fed funds rate, it will have to come to
terms with the institutional realities of the modern financial ecosystem. Specifically:

Wholesale money demand is a structural feature of the system, not an aberration

that can be eliminated by forcing banks to term out their funding.

Institutional cash pools, not households, are the dominant sources of funding in
the US money markets.

The shadow banking system exists parallel to the banking system.

The economys critical funding channel is hybrid: deposits yes, but also secured
repos issued either by broker-dealers or if not by the Fed through RRPs.

To paraphrase Herodotus circumstances rule central banks; central banks do not rule
circumstances. The Fed must seek the correct monetary policy stance, including the right
size and composition of its balance sheet, in world of great change and complexity.
The reduced elasticity of bank and broker-dealer balance sheets amid the still-growing
money demand of institutional cash pools represent the defining challenge to the system.
Interest rates matter, and quantities do too.

Global Money Notes # 1

11

07 May 2015

References:
Pozsar, Zoltan, The Rise and Fall of the Shadow Banking System, Moodys
Economy.com (July, 2008)
Wilmot, Jonathan, Sweeney, James, Klein, Matthias and Lantz, Carl, Long Shadows,
Credit Suisse (May, 2009)
Pozsar, Zoltan, Adrian, Tobias, Ashcraft Adam and Boesky, Hayley, Shadow Banking,
FRBNY (July, 2010)
Pozsar, Zoltan Institutional Cash Pools and the Triffin Dilemma of the US Banking
System, IMF (August, 2011)
Sweeney, James and Wilmot, Jonathan, When Collateral Is King, Credit Suisse
(March, 2012)
Mehrling, Perry, Pozsar, Zoltan, Sweeney, James and Neilson Dan Bagehot Was a
Shadow Banker, INET (November, 2013)
Sweeney, James, Liquidity Required: Reshaping the Financial System, Credit Suisse
(November, 2013)
Pozsar, Zoltan, Shadow Banking: The Money View, US Treasury (July, 2014)
Pozsar, Zoltan , An Atlas of Money Flows in the Global Financial Ecosystem,
US Treasury (July, 2014)
Pozsar, Zoltan, A Macro View of Shadow Banking, INET (January, 2015)

Global Money Notes # 1

12

GLOBAL FIXED INCOME AND ECONOMIC RESEARCH

Ric Deverell
Head of Global Fixed Income and Economic Research
+1 212 538 8964
ric.deverell@credit-suisse.com

GLOBAL ECONOMICS AND STRATEGY

James Sweeney, Chief Economist
Co-Head of Global Economics and Strategy
+1 212 538 4648
james.sweeney@credit-suisse.com

Neville Hill
Co-Head of Global Economics and Strategy
+44 20 7888 1334
neville.hill@credit-suisse.com

GLOBAL STRATEGY AND ECONOMICS

Zoltan Pozsar
+1 212 538 3779
zoltan.pozsar@credit-suisse.com

Wenzhe Zhao
+1 212 325 1798
wenzhe.zhao@credit-suisse.com

Axel Lang
+1 212 538 4530
axel.lang@credit-suisse.com

Jeremy Schwartz
+1 212 538 6419
jeremy.schwartz@credit-suisse.com

Jay Feldman
+1 212 325 7634
jay.feldman@credit-suisse.com

Dana Saporta
+1 212 538 3163
dana.saporta@credit-suisse.com

Xiao Cui
+1 212 538 2511
xiao.cui@credit-suisse.com

US ECONOMICS
James Sweeney
Head of US Economics
+1 212 538 4648
james.sweeney@credit-suisse.com

LATIN AMERICA (LATAM) ECONOMICS

Alonso Cervera
Head of Latam Economics
+52 55 5283 3845
alonso.cervera@credit-suisse.com
Mexico, Chile

Casey Reckman
+1 212 325 5570
casey.reckman@credit-suisse.com
Argentina, Venezuela

Daniel Chodos
+1 212 325 7708
daniel.chodos@credit-suisse.com
Latam Strategy

Juan Lorenzo Maldonado

Alberto J. Rojas
+1 212 325 4245
+1 212 538 4125
juanlorenzo.maldonado@credit-suisse.com alberto.rojas@credit-suisse.com
Colombia, Ecuador, Peru

Daniel Lavarda
+55 11 3701 6352
daniel.lavarda@credit-suisse.co

Iana Ferrao
+55 11 3701 6345
iana.ferrao@credit-suisse.com

Leonardo Fonseca
+55 11 3701 6348
leonardo.fonseca@credit-suisse.com

Paulo Coutinho
+55 11 3701-6353
paulo.coutinho@credit-suisse.com

Giovanni Zanni
+44 20 7888 6827
giovanni.zanni@credit-suisse.com

Sonali Punhani
+44 20 7883 4297
sonali.punhani@credit-suisse.com

Mirco Bulega
+44 20 7883 9315
mirco.bulega@credit-suisse.com

BRAZIL ECONOMICS
Nilson Teixeira
Head of Brazil Economics
+55 11 3701 6288
nilson.teixeira@credit-suisse.com

EUROPEAN ECONOMICS
Neville Hill
Head of European Economics
+44 20 7888 1334
neville.hill@credit-suisse.com

Christel Aranda-Hassel
+44 20 7888 1383
christel.aranda-hassel@credit-suisse.com

EASTERN EUROPE, MIDDLE EAST AND AFRICA (EEMEA) ECONOMICS

Berna Bayazitoglu
Head of EEMEA Economics
+44 20 7883 3431
berna.bayazitoglu@credit-suisse.com
Turkey

Carlos Teixeira
+27 11 012 8054
carlos.teixeira@credit-suisse.com
South Africa, Sub-Saharan Africa

Alexey Pogorelov
+44 20 7883 0396
alexey.pogorelov@credit-suisse.com
Russia, Ukraine, Kazakhstan

Nimrod Mevorach
+44 20 7888 1257
nimrod.mevorach@credit-suisse.com
EEMEA Strategy, Israel

Chernay Johnson
+27 11 012 8068
chernay.johnson @credit-suisse.com
Nigeria, Sub-Saharan Africa

Mikhail Liluashvili
+44 20 7888 7342
mikhail.liluashvili@credit-suisse.com

JAPAN ECONOMICS

NON-JAPAN ASIA (NJA) ECONOMICS

Hiromichi Shirakawa
Head of Japan Economics
+81 3 4550 7117
hiromichi.shirakawa@credit-suisse.com

Dong Tao
Head of NJA Economics
+852 2101 7469
dong.tao@credit-suisse.com
China

Dr. Santitarn Sathirathai

+65 6212 5675
santitarn.sathirathai@credit-suisse.com
Regional, India, Indonesia, Thailand

Christiaan Tuntono
+852 2101 7409
christiaan.tuntono@credit-suisse.com
Hong Kong, Korea, Taiwan

Deepali Bhargava
+65 6212 5699
deepali.bhargava@credit-suisse.com
India

Michael Wan
+65 6212 3418
michael.wan@credit-suisse.com
Singapore, Malaysia, Philippines

Weishen Deng
+852 2101 7162
weishen.deng@credit-suisse.com
China

Takashi Shiono
+81 3 4550 7189
takashi.shiono@credit-suisse.com

Disclosure Appendix
Analyst Certification

The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views
about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link:
https://www.credit-suisse.com/who_we_are/en/This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state,
country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing
requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way,
transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks
or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an
offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat
recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an
independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or
strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact
an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be
reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to
the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the
future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical
methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will
be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication
or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original
date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and
financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of
which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are
capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward
interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own
investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High
volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the
potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in
consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may
prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which
the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website
material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's
website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the
Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited
Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in
Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (Mxico), S.A. (transactions related to the securities mentioned in this report
will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of
Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the
following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, regulated by the Office of
the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit
Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited (CIN no. U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India
(registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse
Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant
authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of
Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in
Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas
investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted
from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder,
in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This information is being distributed by Credit Suisse AG, Dubai Branch, duly licensed and regulated by the Dubai
Financial Services Authority (DFSA), and is directed at Professional Clients or Market Counterparties only, as defined by the DFSA. The financial products or financial services to which the information relates will only be
made available to a client who meets the regulatory criteria to be a Professional Client or Market Counterparty only, as defined by the DFSA, and is not intended for any other person. This research may not conform to
Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from
jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a
CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S.
Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor
customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to
investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation
Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as
to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions
or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement,
direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting
and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer,
municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an
investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is
solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment
advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or
consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
Copyright 2015 CREDIT SUISSE AG and/or its affiliates. All rights reserved.

Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal
can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you
will be requested to pay the purchase price only.