IMF’s Singh warns of the threat of collateral drought to global liquidity

IMF senior economist Manmohan Singh has become something of a celebrity since the summer. Several commentators have seized on his recent writings on collateralized lending, rehypothecation and the shadow banking system to make the case that the downfall of the financial system stems from the overleveraged, unregulated, off-balance-sheet shadow banking system. What Singh is saying, however, is that the shadow banking system is a necessary part of the monetary universe, and therefore something that regulators and policymakers must thoroughly understand if they are to have any success in improving economic performance. In an exclusive interview, Euromoney spoke to Singh as he prepared to celebrate Christmas in Washington DC.