Private Supply of Safe Assets: Shadow Banks versus Traditional Banks
AEA Papers and Proceedings
vol. 110,
May 2020
(pp. 477-81)
Abstract
We show that the creation of private safe assets by shadow banks can decrease traditional banks' supply of safe assets. The 2014–2016 money fund reform created a large demand shock for safe assets, to which Federal Home Loan Banks (FHLBs) responded, expanding their balance sheets and increasing their issuance of short-term debt. To reduce the resulting interest rate risk, FHLBs shortened the repricing of their loans to banks. Focusing on small banks for which the reform was exogenous, we use a novel instrumental variable strategy to show that shadow banks create safe assets at the expense of banks' deposits.Citation
Gissler, Stefan, Marco Macchiavelli, and Borghan Narajabad. 2020. "Private Supply of Safe Assets: Shadow Banks versus Traditional Banks." AEA Papers and Proceedings, 110: 477-81. DOI: 10.1257/pandp.20201098Additional Materials
JEL Classification
- E43 Interest Rates: Determination, Term Structure, and Effects
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- L25 Firm Performance: Size, Diversification, and Scope