Shadow Banking and Bank Capital Regulation

Guillaume Plantin ()
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Guillaume Plantin: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique

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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.

Keywords: Shadow banking activity; Banking system; Banking crisis; Unregulated Banking (search for similar items in EconPapers)
Date: 2015-01
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01168494
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Citations: View citations in EconPapers (21)

Published in Review of Financial Studies, The, 2015, 28 (1), pp.146-175. ⟨10.1093/rfs/hhu055⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-01168494

DOI: 10.1093/rfs/hhu055

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