EconPapers    
Economics at your fingertips  
 

Fintech, regulatory arbitrage, and the rise of shadow banks

Greg Buchak, Gregor Matvos, Tomasz Piskorski and Amit Seru

Journal of Financial Economics, 2018, vol. 130, issue 3, 453-483

Abstract: Shadow bank market share in residential mortgage origination nearly doubled from 2007 to 2015, with particularly dramatic growth among online “fintech” lenders. We study how two forces, regulatory differences and technological advantages, contributed to this growth. Difference in difference tests exploiting geographical heterogeneity induced by four specific increases in regulatory burden–capital requirements, mortgage servicing rights, mortgage-related lawsuits, and the movement of supervision to Office of Comptroller and Currency following closure of the Office of Thrift Supervision–all reveal that traditional banks contracted in markets where they faced more regulatory constraints; shadow banks partially filled these gaps. Relative to other shadow banks, fintech lenders serve more creditworthy borrowers and are more active in the refinancing market. Fintech lenders charge a premium of 14–16 basis points and appear to provide convenience rather than cost savings to borrowers. They seem to use different information to set interest rates relative to other lenders. A quantitative model of mortgage lending suggests that regulation accounts for roughly 60% of shadow bank growth, while technology accounts for roughly 30%.

Keywords: Fintech; Shadow banks; Regulatory arbitrage; Lending; Mortgages; FHA (search for similar items in EconPapers)
JEL-codes: G2 L5 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X1830237X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Fintech, Regulatory Arbitrage, and the Rise of Shadow Banks (2017) Downloads
Working Paper: Fintech, Regulatory Arbitrage, and the Rise of Shadow Banks (2017) Downloads
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:eee:jfinec:v:130:y:2018:i:3:p:453-483

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-10-14
Handle: RePEc:eee:jfinec:v:130:y:2018:i:3:p:453-483