IDEAS home Printed from https://ideas.repec.org/a/ecb/ecbrbu/20200069.html
   My bibliography  Save this article

The growth of non-bank finance and new monetary policy tools

Author

Listed:
  • d'Avernas, Adrien
  • Vandeweyer, Quentin
  • Darracq Pariès, Matthieu

Abstract

How does the presence of “shadow banks” – non-bank, unregulated financial intermediaries – affect the ability of central banks to tackle a liquidity crisis? To address this question, we develop an asset pricing model with both bank and non-bank financial institutions. A crucial part of the model is that banks intermediate liquidity between the central bank and non-banks, but this intermediation stops during a financial crisis. Non-banks are then left without a lender-of-last-resort, and central bank liquidity operations with banks are not sufficient to mitigate the crisis. In our stylized model, opening liquidity facilities to non-banks and purchasing illiquid assets are then essential measures to tackle a liquidity crisis. JEL Classification: E43, E44, E52, G12

Suggested Citation

  • d'Avernas, Adrien & Vandeweyer, Quentin & Darracq Pariès, Matthieu, 2020. "The growth of non-bank finance and new monetary policy tools," Research Bulletin, European Central Bank, vol. 69.
    • Handle: RePEc:ecb:ecbrbu:2020:0069:
    Note: 3107481
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//pub/economic-research/resbull/2020/html/ecb.rb200415~49a80213ca.en.html
    Download Restriction: no
    File URL: https://www.ecb.europa.eu//pub/economic-research/resbull/2020/html/ecb.rb200415~49a80213ca.en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Zhiguo He & Arvind Krishnamurthy, 2013. "Intermediary Asset Pricing," American Economic Review, American Economic Association, vol. 103(2), pages 732-770, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrii Kaminskyi & Maryna Nehrey & Vitalina Babenko & Grzegorz Zimon, 2022. "Model of Optimizing Correspondence Risk-Return Marketing for Short-Term Lending," JRFM, MDPI, vol. 15(12), pages 1-13, December.
    2. Víctor A. Beker, 2020. "How to prevent a new global financial crisis," Asociación Argentina de Economía Política: Working Papers 4309, Asociación Argentina de Economía Política.
    3. Ignacio Benito Amaro, 2020. "Evaluación Económica de pérdidas por enfermedades en bovinos: métodos de valuación de perdida," Asociación Argentina de Economía Política: Working Papers 4310, Asociación Argentina de Economía Política.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alessandri, Piergiorgio & Mumtaz, Haroon, 2019. "Financial regimes and uncertainty shocks," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 31-46.
    2. Koijen, Ralph S.J. & Koulischer, François & Nguyen, Benoît & Yogo, Motohiro, 2021. "Inspecting the mechanism of quantitative easing in the euro area," Journal of Financial Economics, Elsevier, vol. 140(1), pages 1-20.
    3. Javier Bianchi & Enrique G. Mendoza, 2018. "Optimal Time-Consistent Macroprudential Policy," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 588-634.
    4. Jukka Isohätälä & Alistair Milne & Donald Robertson, 2020. "The Net Worth Trap: Investment and Output Dynamics in the Presence of Financing Constraints," Mathematics, MDPI, vol. 8(8), pages 1-32, August.
    5. Ferrante, Francesco, 2019. "Risky lending, bank leverage and unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 100-127.
    6. Denis Gromb & Dimitri Vayanos, 2018. "The Dynamics of Financially Constrained Arbitrage," Journal of Finance, American Finance Association, vol. 73(4), pages 1713-1750, August.
    7. Mendicino, Caterina & Nikolov, Kalin & Ramirez, Juan-Rubio & Suarez, Javier & Supera, Dominik, 2020. "Twin defaults and bank capital requirements," Working Paper Series 2414, European Central Bank.
    8. Geert Bekaert & Eric C. Engstrom & Nancy R. Xu, 2022. "The Time Variation in Risk Appetite and Uncertainty," Management Science, INFORMS, vol. 68(6), pages 3975-4004, June.
    9. Tobias Adrian & Federico Grinberg & Nellie Liang & Sheheryar Malik & Jie Yu, 2022. "The Term Structure of Growth-at-Risk," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(3), pages 283-323, July.
    10. Dasgupta, Amil & Fos, Vyacheslav & Sautner, Zacharias, 2021. "Institutional investors and corporate governance," LSE Research Online Documents on Economics 112114, London School of Economics and Political Science, LSE Library.
    11. Hans Gersbach & Jean-Charles Rochet & Martin Scheffel, 2023. "Financial Intermediation, Capital Accumulation, and Crisis Recovery," Review of Finance, European Finance Association, vol. 27(4), pages 1423-1469.
    12. Du, Wenxin & Hébert, Benjamin & Li, Wenhao, 2023. "Intermediary balance sheets and the treasury yield curve," Journal of Financial Economics, Elsevier, vol. 150(3).
    13. Krishnamurthy, Arvind & Li, Wenhao, 2020. "Dissecting Mechanisms of Financial Crises: Intermediation and Sentiment," Research Papers 3874, Stanford University, Graduate School of Business.
    14. Martin Goetz & Luc Laeven & Ross Levine, 2020. "Do Bank Insiders Impede Equity Issuances?," NBER Working Papers 27442, National Bureau of Economic Research, Inc.
    15. Abbassi, Puriya & Iyer, Rajkamal & Peydró, José-Luis & Tous, Francesc R., 2016. "Securities trading by banks and credit supply: Micro-evidence from the crisis," Journal of Financial Economics, Elsevier, vol. 121(3), pages 569-594.
    16. repec:hal:spmain:info:hdl:2441/293qice3lj861rvos9ns14n0h0 is not listed on IDEAS
    17. Schroth, Josef, 2021. "Macroprudential policy with capital buffers," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 296-311.
    18. Eisenbach, Thomas M., 2017. "Rollover risk as market discipline: A two-sided inefficiency," Journal of Financial Economics, Elsevier, vol. 126(2), pages 252-269.
    19. John H. Cochrane, 2017. "Macro-Finance," Review of Finance, European Finance Association, vol. 21(3), pages 945-985.
    20. Miho Sunaga, 2017. "Capital Adequacy Requirements and Financial Frictions in a Neoclassical Growth Model," Discussion Papers in Economics and Business 17-21, Osaka University, Graduate School of Economics.
    21. Adrian, Tobias & Boyarchenko, Nina, 2018. "Liquidity policies and systemic risk," Journal of Financial Intermediation, Elsevier, vol. 35(PB), pages 45-60.

    More about this item

    Keywords

    Financial Stability; Monetary policy;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbrbu:2020:0069:. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.