Bank holding companies (BHCs) invest in risky projects through bank entities or sell projects for a fee, thus engaging in shadow banking. BHCs can increase their fee income by guaranteeing sold projects with a recourse to the bank’s balance sheet. If bank bailouts are likely and for high capital requirements, the guarantees increase the bank’s default probability, effectively providing a recourse to deposit insurance, and a mutually reinforcing relationship between bank and o-balance credit issuance emerges. The amount of credit in the economy increases. BHCs with large banks off?er higher guarantees than BHCs with small banks, and they dominate the shadow banking sector.