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Shadow-banking entrusted loan management, deposit insurance premium, and capital regulation

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  • Li, Xuelian
  • Lin, Jyh-Horng

Abstract

This paper studies bank interest margin, i.e., the spread between the loan rate and the deposit rate of a bank, when the bank conducts regular lending and shadow-banking entrusted lending activities under capital regulation. We show that an increase in the entrusted loans increases the bank's interest margin, equity risk, and the liability of deposit insurer. Entrusted loans can help spur bank equity return, but there is a trade-off in terms of reduced banking stability. We also find that the reduced margin and the increased equity risk by capital regulation are reinforced when the bank additionally conducts entrusted lending activities. Relaxing regulatory capital requirements may produce superior return performance and greater safety for the bank carrying on shadow-banking entrusted loans.

Suggested Citation

  • Li, Xuelian & Lin, Jyh-Horng, 2016. "Shadow-banking entrusted loan management, deposit insurance premium, and capital regulation," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 98-109.
  • Handle: RePEc:eee:reveco:v:41:y:2016:i:c:p:98-109
    DOI: 10.1016/j.iref.2015.09.003
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:intfin:v:50:y:2017:i:c:p:69-84 is not listed on IDEAS
    2. Jou, Rosemary & Chen, Shi & Tsai, Jeng-Yan, 2017. "Politically connected lending, government capital injection, and bank performance," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 220-232.
    3. repec:eee:reveco:v:57:y:2018:i:c:p:211-236 is not listed on IDEAS
    4. repec:eee:reveco:v:57:y:2018:i:c:p:307-318 is not listed on IDEAS
    5. repec:gam:jijfss:v:6:y:2018:i:3:p:63-:d:155847 is not listed on IDEAS

    More about this item

    Keywords

    Shadow banking; Entrusted loans; Bank interest margin; Capital regulation;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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