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The Rise of Shadow Banking: Evidence from Capital Regulation

Rustom M Irani, Rajkamal Iyer, Ralf Meisenzahl and Jose-Luis Peydro ()

No 12913, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We investigate the connections between bank capital regulation and the prevalence of lightly regulated nonbanks (shadow banks) in the U.S. corporate loan market. For identification, we exploit a supervisory credit register of syndicated loans, loan-time fixed-effects, and shocks to capital requirements arising from surprise features of the U.S. implementation of Basel III. We find that less-capitalized banks reduce loan retention and nonbanks step in, particularly among loans with higher capital requirements and at times when capital is scarce. This reallocation has important spillovers: loans funded by nonbanks with fragile liabilities experience greater sales and price volatility during the 2008 crisis.

Keywords: Basel III; Distressed debt; Interactions between banks and nonbanks; Risk-based capital regulation; Shadow banks; Trading by banks (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 G28 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Related works:
Journal Article: The Rise of Shadow Banking: Evidence from Capital Regulation (2021) Downloads
Journal Article: The rise of shadow banking: Evidence from capital regulation (2021) Downloads
Working Paper: The rise of shadow banking: evidence from capital regulation (2020) Downloads
Working Paper: The Rise of Shadow Banking: Evidence from Capital Regulation (2020)
Working Paper: The Rise of Shadow Banking: Evidence from Capital Regulation (2019) Downloads
Working Paper: The Rise of Shadow Banking: Evidence from Capital Regulation (2018) Downloads
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