Having been given the privilege of opening this conference, let me start at the very beginning with the term "shadow banking." The very phrase evokes the sense of something hidden, furtive even--a sort of film noir backdrop for extending credit, in contrast to the well-lit setting of the local insured depository institution. In the pre-crisis years, there did indeed develop modes of financial intermediation in which certain features of a counterparty relationship were, if not quite obscured, then at least ambiguous, and thus "shadowy." Most notable were arrangements in which guarantees of capital preservation or liquidity provision were understood to exist and to have been previously honored, even in the absence of contractual obligations for those guarantees. But as asset values were falling to points unknown, the withdrawal of many of these implicit guarantees by financial entities that were themselves under stress amplified the growing liquidity crunch.
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