Discretion Displaced: State, Market, and the Birth of Shadow Banking

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Abstract

This article argues that understanding contemporary money production requires a hybrid view of state–market power and attention to how discretion—the power to relate rules to practices—is distributed. Drawing on Deleuze, Guattari, and Barnes, I develop an assemblage theory to analyze the rise of the asset-backed commercial paper (ABCP) market. I show that shadow banking emerged not from deregulation or state–market cooperation, but from a displacement of discretion from policymakers to banks amid fragmented policymaking in the 1960s–80s, whereby regulatory stringency paradoxically enabled monetary expansion.

Author

• Wenhao Song, University of Virginia