Author(s)

Hammad Siddiqi

University of the Sunshine Coast, Queensland, Australia.

There has been a dramatic shift in financial intermediation in the last 10 - 15 years from traditional banks to shadow banks (non-depository institutions that rely on originate-to-distribute lending model). We link this rise to an emerging literature that shows that certain and uncertain utility functions are different with a disproportionate preference for certainty. We show that such a preference plays a role in diverting lending away from the traditional banking model to the shadow banking model. Furthermore, a low interest-rate environment emerges as the key contributing factor in the dramatic rise of shadow banking.

Fintech Shadow Banks, Certain Utility, Uncertain Utility, Securitization

Siddiqi, H. (2022) Disproportionate Safety Preference and the Innovation of Fintech Shadow Banking. Theoretical Economics Letters, 12, 629-635. doi: 10.4236/tel.2022.123035.