Sustainable Shadow Banking

Guillermo Ordoñez

doi:10.1257/mac.20150346

journal article Jan 01, 2018

Sustainable Shadow Banking

Guillermo Ordoñez

American Economic Journal: Macroeconomics Vol. 10 No. 1 pp. 33-56 · American Economic Association

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Abstract

Banking regulation is beneficial because it constrains banks' portfolios to prevent excessive risk taking. But given that regulators usually know less than a bank about its investment opportunities, regulation comes at the cost of foregoing profitable investments. I argue that shadow banking improves welfare because it provides a channel to escape excessive regulation that is asymmetrically more valuable for banks with access to efficient investment opportunities. I propose a novel intervention that improves welfare further by taxing shadow activities, subsidizing regulated activities and allowing banks to self-select into being regulated or not. (JEL D82, G21, G28, G31, G32, L25)

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Metrics

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Citations

31

References

Details

Published: Jan 01, 2018
Vol/Issue: 10(1)
Pages: 33-56

Authors

G

Guillermo Ordoñez

University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA, 19104 and NBER (email: )

Cite This Article

Guillermo Ordoñez (2018). Sustainable Shadow Banking. American Economic Journal: Macroeconomics, 10(1), 33-56. https://doi.org/10.1257/mac.20150346

Sustainable Shadow Banking

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