We investigate the connections between bank capital regulation and the prevalence of lightly regulated nonbanks (shadow banks) in the U.S. corporate loan market. For identification, we exploit a supervisory credit register of syndicated loans, loan-time fixed-effects, and shocks to capital requirements arising from surprise features of the U.S. implementation of Basel III. We find that less-capitalized banks reduce loan retention and nonbanks step in, particularly among loans with higher capital ...
We investigate the connections between bank capital regulation and the prevalence of lightly regulated nonbanks (shadow banks) in the U.S. corporate loan market. For identification, we exploit a supervisory credit register of syndicated loans, loan-time fixed-effects, and shocks to capital requirements arising from surprise features of the U.S. implementation of Basel III. We find that less-capitalized banks reduce loan retention and nonbanks step in, particularly among loans with higher capital requirements and at times when capital is scarce. This reallocation has important spillovers: loans funded by nonbanks with fragile liabilities experience greater sales and price volatility during the 2008 crisis.
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(updated Feb. 27, 2020) We investigate the connections between bank capital regulation and the prevalence of
lightly regulated nonbanks (shadow banks) in the U.S. corporate loan market. For
identification, we exploit a supervisory credit register of syndicated loans, loan-time
fixed-effects, and shocks to capital requirements arising from surprise features of the
U.S. implementation of Basel III. We find that less-capitalized banks reduce loan retention, particularly among loans with higher capital ...
(updated Feb. 27, 2020) We investigate the connections between bank capital regulation and the prevalence of
lightly regulated nonbanks (shadow banks) in the U.S. corporate loan market. For
identification, we exploit a supervisory credit register of syndicated loans, loan-time
fixed-effects, and shocks to capital requirements arising from surprise features of the
U.S. implementation of Basel III. We find that less-capitalized banks reduce loan retention, particularly among loans with higher capital requirements and at times when
capital is scarce, and nonbanks step in. This reallocation has important spillovers:
during the 2008 crisis, loans funded by nonbanks with fragile liabilities are less likely
to be rolled over and experience greater price volatility.
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