Sustainable Shadow Banking

By Guillermo Ordoñez. 2013

127 citations recorded by the source corpus.

Banking regulation is beneficial because it constrains banks' portfolios to prevent excessive risk taking. But given that regulators usually know less than a bank about its investment opportunities, regulation comes at the cost of foregoing profitable investments. I argue that shadow banking improves welfare because it provides a channel to escape excessive regulation that is asymmetrically more valuable for banks with access to efficient investment opportunities. I propose a novel intervention that improves welfare further by taxing shadow activities, subsidizing regulated activities and allowing banks to self-select into being regulated or not.

Subfields: Finance, Management Information Systems

View Paper: https://www.semanticscholar.org/paper/99e5e7ef0f6e0f32dfdf0cda31b47b39c7df54b5

Citations in the corpus

• Banks as Secret Keepers (2017, unknown): “, Boyd and Prescott (1986). Another line looks at the liability side of banks. In Diamond and Dybvig (1983) the bank issues demand deposits to insure consumers against liquidity shocks, but the asset side is deterministic. In their paper the possibility of trading among consumers destroys insurance ”
• Shadow Banking and Bank Capital Regulation (2015, unknown): “Pozsar et al. (2010) offer an excellent detailed description of the shadow banking system, and show that its total liabilities have the same order of magnitude as that of the traditional banking sector.”
• The Rise of Shadow Banking: Evidence from Capital Regulation (2018, unknown): “On the positive side, technological advances, liquidity transformation, and superior knowledge could motivate nonbank entry into this market (Buchak et al. 2018; Moreira and Savov 2017; Ordoñez 2018), which may lead to greater efficiency and lower borrowing costs for households (Fuster et al.”