Farhi, Emmanuel and Tirole, Jean (2021) Shadow banking and the four pillars of traditional financial intermediation. The Review Of Economic Studies, vol. 88 (n° 6). pp. 2622-2653.

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Identification Number : 10.1093/restud/rdaa059


Traditional banking is built on four pillars: SME lending, insured deposit taking, access to lender of last resort, and prudential supervision. This paper unveils the logic of the quadrilogy by showing that it emerges naturally as an equilibrium outcome in a game between banks and the government. A key insight is that regulation and public insurance services (LOLR, deposit insurance) are complementary. The model also shows how prudential regulation must adjust to the emergence of shadow banking, and rationalizes structural remedies to counter bogus liquidity hoarding and financial contagion: ring-fencing between regulated and shadow banking and the sharing of liquidity in centralized platforms.

Item Type: Article
Language: English
Date: November 2021
Refereed: Yes
Place of Publication: London.
Uncontrolled Keywords: Retail and shadow banks, lender of last resort, deposit insurance, supervision, migration, ring-fencing, CCPs, narrow banks
JEL Classification: E44 - Financial Markets and the Macroeconomy
E58 - Central Banks and Their Policies
G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G28 - Government Policy and Regulation
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 27 Jan 2022 13:56
Last Modified: 27 Jan 2022 13:56
OAI Identifier: oai:tse-fr.eu:125175
URI: https://publications.ut-capitole.fr/id/eprint/42296
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