Shadow-banking entrusted loan management, deposit insurance premium, and capital regulation

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Title:	Shadow-banking entrusted loan management, deposit insurance premium, and capital regulation
Authors:	Li, Xue-lian;Lin, Jyh-Horng
Keywords:	Shadow banking;Entrusted loans;Bank interest margin;Capital regulation
Date:	2015-12-24
Issue Date:	2016-04-22 13:41:46 (UTC+8)
Publisher:	Elsevier BV
Abstract:	This paper studies bank interest margin, i.e., the spread between the loan rate and the deposit rate of a bank, when the bank conducts regular lending and shadow-banking entrusted lending activities under capital regulation. We show that an increase in the entrusted loans increases the bank's interest margin, equity risk, and the liability of deposit insurer. Entrusted loans can help spur bank equity return, but there is a trade-off in terms of reduced banking stability. We also find that the reduced margin and the increased equity risk by capital regulation are reinforced when the bank additionally conducts entrusted lending activities. Relaxing regulatory capital requirements may produce superior return performance and greater safety for the bank carrying on shadow-banking entrusted loans.
Relation:	International Review of Economics and Finance 41, pp.98-109
DOI:	10.1016/j.iref.2015.09.003
Appears in Collections:	[Graduate Institute & Department of International Business] Journal Article

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