CONSUMER SHADOW BANKS

There is no risk-free way to engage in bank-like activities. Entities that take deposits, transmit money, or otherwise provide custody of funds all generally engage in maturity transformation, a process that turns short-term debts into longer-term investments. Maturity transformation is inherently d...

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Bibliographic Details
Published inStanford law & policy review Vol. 35; no. 2; p. 226
Main Authors Phillips, Todd, Bruckner, Matthew Adam
Format Journal Article
LanguageEnglish
Published Stanford Law School 22.03.2024
Subjects
Commodity futures
Consumer protection
Crypto-currencies
Electronic trading (Securities)
Insider trading in securities
Laws, regulations and rules
Peer to peer lending
Online AccessGet full text
ISSN1044-4386

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Summary:There is no risk-free way to engage in bank-like activities. Entities that take deposits, transmit money, or otherwise provide custody of funds all generally engage in maturity transformation, a process that turns short-term debts into longer-term investments. Maturity transformation is inherently dangerous. Firms that engage in these activities also face moral hazard, whereby they may act contrary to their customers' interests. Without government intervention and a backstop, institutions that engage in these activities are liable to run, harming their customers. For that reason, the government heavily regulates bank, serves as their lender of last resort, and provides their depositors with insurance. Scholars have long been wary of "shadow banks:" nonbanks that perform bank-like activities without the guardrails that protect bank depositors.
ISSN:1044-4386