Shadow Banking and the Four Pillars of Traditional Financial Intermediation

Emmanuel Farhi and Jean Tirole

No 23930, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Traditional banking is built on four pillars: SME lending, insured deposit taking, access to lender of last resort, and prudential supervision. This paper unveils the logic of the quadrilogy by showing that it emerges naturally as an equilibrium outcome in a game between banks and the government. A key insight is that regulation and public insurance services (LOLR, deposit insurance) are complementary. The model also shows how prudential regulation must adjust to the emergence of shadow banking, and rationalizes structural remedies to counter financial contagion: ring-fencing between regulated and shadow banking and the sharing of liquidity in centralized platforms.

JEL-codes: E0 G0 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-mac
Note: CF EFG
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Citations: View citations in EconPapers (40)

Published as Emmanuel Farhi & Jean Tirole & Veronica Guerrieri, 2021. "Shadow Banking and the Four Pillars of Traditional Financial Intermediation," The Review of Economic Studies, vol 88(6), pages 2622-2653.

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Related works:
Journal Article: Shadow Banking and the Four Pillars of Traditional Financial Intermediation (2021)
Working Paper: Shadow banking and the four pillars of traditional financial intermediation (2021)
Working Paper: Shadow Banking and the Four Pillars of Traditional Financial Intermediation (2018)
Working Paper: Shadow Banking and the Four Pillars of Traditional Financial Intermediation (2017)
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