The Rise of Shadow Banking: Evidence from Capital Regulation

Rustom M. Irani, Rajkamal Iyer, Ralf R. Meisenzahl and Jose-Luis Peydro

No 1098, Working Papers from Barcelona School of Economics

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, particularly among loans with higher capital requirements and at times when capital is scarce, and nonbanks step in. This reallocation has important spillovers: during the 2008 crisis, loans funded by nonbanks with fragile liabilities are less likely to be rolled over and experience greater price volatility.

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)
Date: 2019-04
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The Rise of Shadow Banking: Evidence from Capital Regulation (2021)
Journal Article: The rise of shadow banking: Evidence from capital regulation (2021)
Working Paper: The rise of shadow banking: evidence from capital regulation (2020)
Working Paper: The Rise of Shadow Banking: Evidence from Capital Regulation (2020)
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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