Working Paper

What drives the shadow banking system in the short and long run?

Abstract: This paper analyzes how risk and other factors altered the relative use of short-term business debt funded by the shadow banking system since the early 1960s. Results indicate that the share was affected over the long-run not only by changing information and reserve requirement costs, but also by shifts in the impact of regulations on bank versus nonbank credit sources?such as Basel I in 1990 and reregulation in 2010. In the short-run, the shadow share rose when deposit interest rate ceilings were binding, the economic outlook improved, or risk premia declined, and fell when event risks disrupted financial markets.

Keywords: shadow banking; regulation; financial frictions; credit rationing;

JEL Classification: E44; E50; N12;

https://doi.org/10.24149/wp1401

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2014-02-13

Number: 1401