Appendix 7 — The Pre-Crisis Backstop of the Shadow Credit Intermediation Process — The Case of FHCs

Only step 1 (loan origination) was officially backstopped — FDIC deposit insurance (credit put) and the Fed discount window (liquidity put). The other six steps were privately enhanced: commercial-bank consortia wrote liquidity puts (credit lines) to conduits/SIVs and tri-party clearing banks; mortgage/monoline insurers and AIG-FP wrote credit puts on loans, ABS and CDOs. When these puts were questioned, collateral fell, ABCP couldn't roll and funders ran to the interbank market — Libor spiked. Hover any cell for instrument / tenor / rating / seniority / capital form / stress tags / backstop linkage; hover any arrow for the flow's instrument and counterparty role.