The Limits of Shadow Banks

69 Pages Posted: 15 Oct 2018 Last revised: 22 Nov 2018

See all articles by Greg Buchak

Greg Buchak

University of Chicago

Gregor Matvos

University of Texas at Austin - Department of Finance

Tomasz Piskorski

Columbia Business School - Finance and Economics

Amit Seru

Stanford University

Date Written: October 4, 2018


We study which types of activities migrate to the shadow banking sector, why migration occurs in some sectors, and not others, and the quantitative importance of this migration. We explore this question in the $10 trillion US residential mortgage market, in which shadow banks account for more than half of new lending. Using micro data, we document a large degree of market segmentation in shadow bank penetration. They substitute for traditional — deposit taking — banks in easily securitized lending, but are limited from engaging in activities requiring on-balance sheet financing. Traditional banks adjust their financing and lending activities to balance sheet shocks, and behave more like shadow banks following negative shocks. Motivated by this evidence, we build a structural model. Banks and shadow banks compete for borrowers. Banks face regulatory constraints, but benefit from the ability to engage in balance sheet lending. Like shadow banks, banks can choose to access the securitization market. To evaluate distributional consequences, we model a rich demand system with income and house price differences across borrowers. The model is estimated using spatial pricing rules and bunching at the regulatory threshold for identification. We study the consequences of capital requirements, access to securitization market, and unconventional monetary policy on lending volume and pricing, bank stability and the distribution of consumer surplus across rich and poor households. Disruptions in securitization markets rather than capital requirements have the largest quantitative impact on aggregate lending volume and pricing.

Keywords: Shadow Banks, Balance Sheet Capacity, Market Segmentation, Capital Requirements, Lending, Mortgages, GSEs, Unconventional Monetary Policy

JEL Classification: G2, L5

Suggested Citation

Buchak, Greg and Matvos, Gregor and Piskorski, Tomasz and Seru, Amit, The Limits of Shadow Banks (October 4, 2018). Columbia Business School Research Paper No. 18-75. Available at SSRN: or

Greg Buchak

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Gregor Matvos

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Tomasz Piskorski

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Amit Seru (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics