The Rise of Shadow Banking : Evidence from Capital Regulation
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.
File(s): File format is application/pdf https://www.federalreserve.gov/econres/feds/files/2018039pap.pdf
Part of Series: Finance and Economics Discussion Series
Publication Date: 2018-06-20
Pages: 56 pages