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Financing Modes and Lender Monitoring

Author

Listed:
  • Arturo Anton
  • Kaniska dup Dam
  • Rajdeep Sengupta

Abstract

Shadow banks are widely believed to be a creation of financial regulation and regulatory arbitrage. We show that bank and nonbank modes of financing can emerge endogenously in a simple borrower-lender framework absent regulatory arbitrage or policy interventions. The coexistence of banks and shadow banks in the absence of regulatory intervention speaks to the importance of shadow banks as alternative modes of financial intermediation. We explore the scope of regulation in determining the size and location of shadow banking, as opposed to how regulation can be designed to curtail shadow bank activities.

Suggested Citation

  • Arturo Anton & Kaniska dup Dam & Rajdeep Sengupta, 2023. "Financing Modes and Lender Monitoring," Research Working Paper RWP 23-13, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:97256
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    More about this item

    Keywords

    banking and finance; monetary policy; shadow banks; regulatory arbitrage; financial regulations;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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