Sustainable Shadow Banking
نویسنده
چکیده
Commercial banks are subject to regulation that restricts their investments. When banks are concerned for their reputation, however, they could self-regulate and invest more efficiently. Hence, a shadow banking that arises to avoid regulation has the potential to improve welfare. Still, reputation concerns depend on future economic prospects and may suddenly disappear, generating a collapse of shadow banking and a return to traditional banking, with a decline in welfare. I discuss a combination of traditional regulation and cross reputation subsidization that enhances shadow banking and makes it more sustainable. ⇤University of Pennsylvania and NBER. 1
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