Banking Without Deposits: Evidence from Shadow Bank Call Reports

69 Pages Posted: 21 May 2020

See all articles by Erica Jiang

Erica Jiang

University of Texas at Austin

Gregor Matvos

Northwestern University - Kellogg School of Management

Tomasz Piskorski

Columbia Business School - Finance and Economics

Amit Seru

Stanford University

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 2020

Abstract

Is bank capital structure designed to extract deposit subsidies? We address this question by studying capital structure decisions of shadow banks: intermediaries that provide banking services but are not funded by deposits. We assemble, for the first time, call report data for shadow banks which originate one quarter of all US household debt. We document five facts.

(1) Shadow banks use twice as much equity capital as equivalent banks, but are substantially more leveraged than non-financial firms.

(2) Leverage across shadow banks is substantially more dispersed than leverage across banks.

(3) Like banks, shadow banks finance themselves primarily with short-term debt and originate long-term loans. However, shadow bank debt is provided primarily by informed and concentrated lenders.

(4) Shadow bank leverage increases substantially with size, and the capitalization of the largest shadow banks is similar to banks of comparable size.

(5) Uninsured leverage, defined as uninsured debt funding to assets, increases with size and average interest rates on uninsured debt decline with size for both banks and shadow banks.

Modern shadow bank capital structure choices resemble those of pre-deposit-insurance banks both in the U.S. and Germany, suggesting that the differences in capital structure with modern banks are likely due to banks’ ability to access insured deposits. Our results suggest that banks’ level of capitalization is pinned down by deposit subsidies and capital regulation at the margin, with small banks likely to be largest recipients of deposit subsidies. Models of financial intermediary capital structure then have to simultaneously explain high (uninsured) leverage, which increases with the size of the intermediary, and allow for substantial heterogeneity across capital structures of firms engaged in similar activities. Such models also need to explain high reliance on short-term debt of financial intermediaries.

Keywords: Banking, Capital Structure, Debt, Shadow Banks, Deposits, Capital Requirements, Lending, Mortgages, GSEs

JEL Classification: G2, L5

Suggested Citation

Jiang, Erica and Matvos, Gregor and Piskorski, Tomasz and Seru, Amit, Banking Without Deposits: Evidence from Shadow Bank Call Reports (March 25, 2020). Available at SSRN: https://ssrn.com/abstract=3584191 or http://dx.doi.org/10.2139/ssrn.3584191

Erica Jiang

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Gregor Matvos

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
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

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