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Shadow Banking and Bank Capital Regulation

Author

Listed:
  • Guillaume Plantin

    () (ECON - Département d'économie - Sciences Po)

Abstract

Banks are subject to capital requirements because their privately optimal leverage is higher than the socially optimal one. This is in turn because banks fail to internalize all costs that their insolvency creates for agents who use their money-like liabilities to settle transactions. If banks can bypass capital regulation in an opaque shadow banking sector, it may be optimal to relax capital requirements so that liquidity dries up in the shadow banking sector. Tightening capital requirements may spur a surge in shadow banking activity that leads to an overall larger risk on the money-like liabilities of the formal and shadow banking institutions.

Suggested Citation

  • Guillaume Plantin, 2015. "Shadow Banking and Bank Capital Regulation," Post-Print hal-01168494, HAL.
  • Handle: RePEc:hal:journl:hal-01168494
    DOI: 10.1093/rfs/hhu055
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-01168494
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    File URL: https://hal-sciencespo.archives-ouvertes.fr/hal-01168494/document
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    References listed on IDEAS

    as
    1. Nicola Gennaioli & Andrei Shleifer & Robert W. Vishny, 2013. "A Model of Shadow Banking," Journal of Finance, American Finance Association, vol. 68(4), pages 1331-1363, August.
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    3. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
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    5. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
    6. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    7. repec:aea:aejmac:v:10:y:2018:i:1:p:33-56 is not listed on IDEAS
    8. Kane, Edward J, 1988. "Interaction of Financial and Regulatory Innovation," American Economic Review, American Economic Association, vol. 78(2), pages 328-334, May.
    9. Marcin Kacperczyk & Philipp Schnabl, 2010. "When Safe Proved Risky: Commercial Paper during the Financial Crisis of 2007-2009," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 29-50, Winter.
    10. Silber, William L, 1983. "The Process of Financial Innovation," American Economic Review, American Economic Association, vol. 73(2), pages 89-95, May.
    11. Guillermo Ordoñez, 2018. "Sustainable Shadow Banking," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(1), pages 33-56, January.
    12. Chao Gu & Fabrizio Mattesini & Randall Wright, 2013. "Banking: A New Monetarist Approach," Review of Economic Studies, Oxford University Press, vol. 80(2), pages 636-662.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Improving resilience: banks and non-bank intermediaries
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2019-02-18 13:03:28

    Citations

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    Cited by:

    1. Voellmy, Lukas, 2017. "Shadow Banking and Financial Stability under Limited Deposit Insurance," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168262, Verein für Socialpolitik / German Economic Association.
    2. repec:eee:jbfina:v:88:y:2018:i:c:p:455-465 is not listed on IDEAS
    3. E. Chrétien & V. Lyonnet, 2017. "Traditional and Shadow Banks during the Crisis," Débats économiques et financiers 27, Banque de France.
    4. Funke, Michael & Mihaylovski, Petar & Zhu, Haibin, 2015. "Monetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate control," BOFIT Discussion Papers 9/2015, Bank of Finland, Institute for Economies in Transition.
    5. Acharya, Viral V & Plantin, Guillaume, 2018. "Monetary Easing, Investment and Financial Instability," CEPR Discussion Papers 13072, C.E.P.R. Discussion Papers.
    6. Sengupta, Rajdeep & Black, Lamont K. & Floros , Ioannis, 2016. "Raising capital when the going gets tough: U.S. bank equity issuance from 2001 to 2014," Research Working Paper RWP 16-5, Federal Reserve Bank of Kansas City.
    7. Martinez-Miera, David & Repullo, Rafael, 2019. "Markets, banks, and shadow banks," Working Paper Series 2234, European Central Bank.
    8. Viral Acharya & Guillaume Plantin, 2018. "Monetary Easing, Investment and Financial Instability," Sciences Po publications DP 13072, Sciences Po.
    9. Abdellah Manadir & Kevin Moran, 2018. "Optimal Bayesian Estimation of Financial Frictions: An Encompassing View," Cahiers de recherche 1816, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.
    10. David Martinez-Miera & Rafael Repullo, 2018. "Markets, Banks, and Shadow Banks," Working Papers wp2018_1811, CEMFI.
    11. repec:eee:intfin:v:50:y:2017:i:c:p:69-84 is not listed on IDEAS
    12. repec:eee:ecmode:v:64:y:2017:i:c:p:172-177 is not listed on IDEAS
    13. Gebauer, Stefan & Mazelis, Falk, 2018. "The Role of Shadow Banking for Financial Regulation," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181581, Verein für Socialpolitik / German Economic Association.
    14. repec:gam:jijfss:v:6:y:2018:i:3:p:63-:d:155847 is not listed on IDEAS
    15. 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.

    More about this item

    Keywords

    Shadow banking activity; Banking system; Banking crisis; Unregulated Banking;

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