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The Secular Decline In Interest Rates And The Rise Of Shadow Banks.pdf

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Preview of The Secular Decline in Interest Rates and the Rise of Shadow Banks
🔗 Source: conference.nber.org
📊 Size: 1.27 MB
📄 Pages: 60 pages
⬇️ Downloads: 92

Summary

Over the past two decades, shadow banks have significantly expanded their share of residential mortgage lending, surpassing pre-financial crisis levels. This surge is often attributed to post-crisis regulatory changes and improvements in shadow banks' technology. However, a new driving force is the persistent decline in interest rates. When interest rates are high, cheap deposit funding provides banks with a significant competitive advantage against shadow banks relying on wholesale funding. As interest rates plummet, banks lose this advantage, experience a squeeze in their net interest margin, leading to diminished profitability, weaker growth, and cost-cutting measures. By contrast, shadow banks are able to gain market share. The decline in interest rates has an asymmetric impact on banks and non-banks, with shadow banks' funding disadvantage disappearing as interest rates fall, allowing them to grow relative to traditional banks.

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Over the past two decades, shadow banks have significantly expanded their share of residential mortgage lending, surpassing pre-financial crisis levels.

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  • File Format: PDF
  • File Size: 1.27 MB
  • Pages: 60
  • Language: EN
  • Total Downloads: 92
  • Last Updated: 1 week ago

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