18 Such tasks of shadow banking institutions had been the origin of uncertainty for dealer banks in 2008, such as for example Bear Sterns, Merrill Lynch, and Lehman Brothers, leading to the outbreak associated with the crisis (Claessens et al., 2012, pp. 16–17). Hedge funds that pledged security to Lehman Brothers are not in a position to recover it whenever Lehman went bankrupt given that it had re-used it as the very own security (Fender and Gyntelberg, 2008, p. 7). 19

Probably the numerous re-using of security may be well recognized by taking a look at organizations’ economic statements: “Off-balance sheet item(s) like ‘pledged-collateral that is allowed to be re-used, ’ are shown in footnotes simultaneously by a number of entities, for instance., the pledged collateral is certainly not owned by these organizations, but as a result of rehypothecation rights, these firms are lawfully permitted to utilize the security in their own name” (Singh, Aitken, 2010, p. 9). Continue reading →