Markets, Banks, and Shadow Banks

• David Martinez-Miera ^[1] ; Rafael Repullo ^[2]
  1. [1] Universidad Carlos III de Madrid

     Universidad Carlos III de Madrid

     Madrid, España

     
  2. [2] CEMFI
• Localización: Documentos de Trabajo ( CEMFI ), Nº. 11 (CEMFI Working Paper No. 1811, October 2018), 2018
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • We analyze the effect of bank capital requirements on the structure and risk of a financial system where markets, regulated banks, and shadow banks coexist. Banks face a moral hazard problem in screening entrepreneurs' projects, and they choose whether to be regulated or not. If regulated, a supervisor certifies their capital; if not, they have to rely on more expensive private certification.

    Under both risk-insensitive and risk-sensitive requirements, safer entrepreneurs borrow from the market and riskier entrepreneurs borrow from banks. But risk-insensitive (sensitive) requirements are especially costly for relatively safe (risky) entrepreneurs, which may shift from regulated to shadow banks.