How Capital Regulation and Other Factors Drive the Role of Shadow Banking in Funding Short-Term Business Credit

48 Pages Posted: 14 Oct 2014

See all articles by John V. Duca

John V. Duca

Federal Reserve Banks - Federal Reserve Bank of Dallas; Oberlin College

Date Written: October 13, 2014

Abstract

This paper analyzes how capital regulation, risk, and other factors altered the relative use of shadow banking system-funded, short-term business debt 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 relative regulation of bank versus nonbank credit sources — such as Basel I in 1990 and reregulation in 2010. In the short-run, the shadow bank 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

Suggested Citation

Duca, John V., How Capital Regulation and Other Factors Drive the Role of Shadow Banking in Funding Short-Term Business Credit (October 13, 2014). Available at SSRN: https://ssrn.com/abstract=2509602 or http://dx.doi.org/10.2139/ssrn.2509602

John V. Duca (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Oberlin College

Oberlin, OH 44074
United States

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