Financial Regulation in a Quantitative Model of the Modern Banking System
Juliane Begenau and
Tim Landvoigt
No 28501, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
How does the shadow banking system respond to changes in capital regulation of commercial banks? We propose a quantitative general equilibrium model with regulated and unregulated banks to study the unintended consequences of regulation. Tighter capital requirements for regulated banks cause higher convenience yield on debt of all banks, leading to higher shadow bank leverage and a larger shadow banking sector. At the same time, tighter regulation eliminates the subsidies to commercial banks from deposit insurance, reducing the competitive pressures on shadow banks to take risks. The net effect is a safer financial system with more shadow banking. Calibrating the model to data on financial institutions in the U.S., the optimal capital requirement is around 16%.
JEL-codes: E41 E44 G21 G23 G28 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cwa, nep-dge, nep-fdg, nep-ias and nep-mac
Note: AP CF EEE
References: Add references at CitEc
Citations: View citations in EconPapers (23)
Published as J Begenau & T Landvoigt, 2022. "Financial Regulation in a Quantitative Model of the Modern Banking System," The Review of Economic Studies, vol 89(4), pages 1748-1784.
Downloads: (external link)
http://www.nber.org/papers/w28501.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:28501
Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w28501
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by (wpc@nber.org).