Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • September 2015
  • Article
  • Journal of Financial Economics

Banks as Patient Fixed-Income Investors

By: Samuel G. Hanson, Andrei Shleifer, Jeremy C. Stein and Robert W. Vishny
  • Format:Print
ShareBar

Abstract

We examine the business model of traditional commercial banks when they compete with shadow banks. While both types of intermediaries create safe "money-like" claims, they go about this in different ways. Traditional banks create money-like claims by holding illiquid fixed-income assets to maturity, and they rely on deposit insurance and costly equity capital to support this strategy. This strategy allows bank depositors to remain "sleepy": they do not have to pay attention to transient fluctuations in the market value of bank assets. In contrast, shadow banks create money-like claims by giving their investors an early exit option requiring the rapid liquidation of assets. Thus, traditional banks have a stable source of funding, while shadow banks are subject to runs and fire-sale losses. In equilibrium, traditional banks have a comparative advantage at holding fixed-income assets that have only modest fundamental risk but are illiquid and have substantial transitory price volatility, whereas shadow banks tend to hold relatively liquid assets.

Keywords

Shadow Banking; Safe Money-like Claims; Commercial Banking

Citation

Hanson, Samuel G., Andrei Shleifer, Jeremy C. Stein, and Robert W. Vishny. "Banks as Patient Fixed-Income Investors." Journal of Financial Economics 117, no. 3 (September 2015): 449–469. (Internet Appendix Here.)
  • Find it at Harvard

About The Author

Samuel G. Hanson

Finance
→More Publications

More from the Authors

    • 2022
    • Faculty Research

    Demand-and-Supply Imbalance Risk and Long-Term Swap Spreads

    By: Samuel G. Hanson, Aytek Malkhozov and Gyuri Venter
    • April 2022
    • Journal of Finance

    Predictable Financial Crises

    By: Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen
    • January 2022 (Revised January 2022)
    • Faculty Research

    The Impact Developers Fund

    By: Malcolm Baker, Samuel Gregory Hanson, Jonathan Wallen and Zach Komes
More from the Authors
  • Demand-and-Supply Imbalance Risk and Long-Term Swap Spreads By: Samuel G. Hanson, Aytek Malkhozov and Gyuri Venter
  • Predictable Financial Crises By: Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen
  • The Impact Developers Fund By: Malcolm Baker, Samuel Gregory Hanson, Jonathan Wallen and Zach Komes
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College