Citation

Discussion Paper Details

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Title: Shadow Banking and the Four Pillars of Traditional Financial Intermediation

Author(s): Emmanuel Farhi and Jean Tirole

Publication Date: October 2017

Keyword(s): CCPs, deposit insurance, lender of last resort, migration, Retail and shadow banks, ring fencing and Supervision

Programme Area(s): Financial Economics

Abstract: Traditional banking is built on four pillars: SME lending, access to public liquidity, deposit insurance, and prudential supervision. This vision has been shattered by repeated bailouts of shadow financial institutions. This paper puts "special depositors and borrowers'" at the core of the analysis, provides a rationale for the covariation yielding the quadrilogy, and analyzes how prudential regulation must adjust to the possibility of migration toward less regulated spheres. Ring fencing between regulated and shadow banking and the sharing of liquidity in centralized platforms are motivated by the supervision of syphoning and financial contagion.

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Bibliographic Reference

Farhi, E and Tirole, J. 2017. 'Shadow Banking and the Four Pillars of Traditional Financial Intermediation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12373