The Rise of Shadow Banking: Evidence from Capital Regulation
Rustom M. Irani,
Ralf R. Meisenzahl and
Jose-Luis Peydro ()
No 2018-039, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)
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: Shadow banks; Risk-based capital regulation; Basel III; Interactions between banks and nonbanks; Trading by banks; Distressed debt (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-rmg
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Working Paper: The Rise of Shadow Banking: Evidence from Capital Regulation (2019)
Working Paper: The Rise of Shadow Banking: Evidence from Capital Regulation (2018)
Working Paper: The rise of shadow banking: evidence from capital regulation (2018)
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