This paper explores financial stability policies for the shadow banking system. I tie policy options to economic mechanisms for shadow banking that have been documented in the literature. I then illustrate the role of shadow bank policies using three examples: agency mortgage real estate...

Pierret (2015) presents empirical analysis of the solvency-liquidity nexus for the banking system, documenting that a shock to the level of banks' solvency risk is followed by lower short-term debt. Conversely, higher short-term debt Granger-causes higher solvency risk. These results point...

The paper provides a baseline model for regulatory analysis of systemic liquidity shocks. We show that banks may have an incentive to invest excessively in illiquid long term projects. In the prevailing mixed strategy equilibrium the allocation is inferior from the investor's point of view since...

This paper provides a compact framework for banking regulation analysis in the presence of uncertainty between systemic liquidity and solvency shocks. Extending the work by Cao & Illing (2009a, b), it is shown that systemic liquidity shortage arises endogenously as part of the inferior mixed...

A bank's decision on loan supply and capital structure determines its immediate bankruptcy risk as well as the future availability of internal funds. These internal funds in turn determine a bank's future costs of external finance and future vulnerability to bankruptcy risks. We study these...

What constitutes shadow banking has been described by the international financial institutions, such as FSB, IOSCO, ECB and European Commission. A common characteristic is that several of the shadow banking activities are outside the banking field but are likely to have an impact on the banking...

Despite the progress made on the empirical front, normative analyses are still lacking when it comes to foreign currency intermediation (partial dollarization of the domestic banking system) and the ways to address its systemic risks implications. In this paper, we make a comprehensive analysis...

The notion that some banks are “too big to fail” builds on the premise that governments will offer support to avoid the adverse consequences of their disorderly failures. However, this promise of support comes at a cost: Large, complex, or interconnected banks might take on more risk if they...