A Model of Shadow Banking

Nicola Gennaioli

No 89, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: We present a model of shadow banking in which banks originate and trade loans, assemble them into diversified portfolios, and finance these portfolios externally with riskless debt. In this model: outside investor wealth drives the demand for riskless debt and indirectly for securitization, bank assets and leverage move together, banks become interconnected through markets, and banks increase their exposure to systematic risk as they reduce idiosyncratic risk through diversification. The shadow banking system is stable and welfare improving under rational expectations, but vulnerable to crises and liquidity dry-ups when investors ignore tail risks.

Date: 2012
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: A Model of Shadow Banking (2015)
Journal Article: A Model of Shadow Banking (2013)
Working Paper: A Model of Shadow Banking (2013)
Working Paper: A Model of Shadow Banking (2011)
Working Paper: A Model of Shadow Banking
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:89

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