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Private Supply of Safe Assets: Shadow Banks versus Traditional Banks

Author

Listed:
  • Stefan Gissler
  • Marco Macchiavelli
  • Borghan Narajabad

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.

Suggested Citation

  • Stefan Gissler & Marco Macchiavelli & Borghan Narajabad, 2020. "Private Supply of Safe Assets: Shadow Banks versus Traditional Banks," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 477-481, May.
    • Handle: RePEc:aea:apandp:v:110:y:2020:p:477-81
    DOI: 10.1257/pandp.20201098
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    Citations

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    Cited by:

    1. Marcin Kacperczyk & Christophe Pérignon & Guillaume Vuillemey, 2021. "The Private Production of Safe Assets," Journal of Finance, American Finance Association, vol. 76(2), pages 495-535, April.
    2. Jean Barthélémy & Paul Gardin & Benoit Nguyen, 2023. "Stablecoins and the Financing of the Real Economy," Working papers 908, Banque de France.

    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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