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Shadow Bank Distress and Household Debt Relief: Evidence from the CARES Act

Author

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  • Susan Cherry
  • Erica Jiang
  • Gregor Matvos
  • Tomasz Piskorski
  • Amit Seru

Abstract

Shadow banks service a substantial portion of household debt in the United States, including half of residential mortgages. They also funded and implemented a large portion of the CARES Act-driven debt relief. Despite uniform policy and similar borrowers, shadow banks offered debt forbearance at a significantly lower (27 percent) rate compared to traditional banks. Better-capitalized shadow banks offered forbearance at a much higher rate, and those with larger exposure to servicing related liquidity shocks reduced this exposure by selling their servicing rights. We highlight the fragility of shadow bank servicing during downturns that can impede the pass-through of debt relief to households.

Suggested Citation

  • Susan Cherry & Erica Jiang & Gregor Matvos & Tomasz Piskorski & Amit Seru, 2022. "Shadow Bank Distress and Household Debt Relief: Evidence from the CARES Act," AEA Papers and Proceedings, American Economic Association, vol. 112, pages 509-515, May.
    • Handle: RePEc:aea:apandp:v:112:y:2022:p:509-15
    DOI: 10.1257/pandp.20221077
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    Citations

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    Cited by:

    1. Greg Buchak & Gregor Matvos & Tomasz Piskorski & Amit Seru, 2023. "Aggregate Lending and Modern Financial Intermediation: Why Bank Balance Sheet Models Are Miscalibrated," NBER Chapters, in: NBER Macroeconomics Annual 2023, volume 38, National Bureau of Economic Research, Inc.
    2. You Suk Kim & Donghoon Lee & Tess C. Scharlemann & James Vickery, 2022. "Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance," Finance and Economics Discussion Series 2022-017, Board of Governors of the Federal Reserve System (U.S.).
    3. Sandler, Ryan, 2023. "Aligning incentives: The effect of mortgage servicing rules on foreclosures and delinquency," Regional Science and Urban Economics, Elsevier, vol. 102(C).

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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