Less Bank Regulation, More Non-Bank Lending

Mary Chen (), Seung Jung Lee (), Daniel Neuhann () and Farzad Saidi ()
Additional contact information
Mary Chen: Federal Reserve Bank of Boston
Seung Jung Lee: Federal Reserve Board of Governors
Daniel Neuhann: University of Texas at Austin
Farzad Saidi: University of Bonn & CEPR

No 303, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: Bank deregulation in the form of the repeal of the Glass-Steagall Act facilitated the entry of non-bank lenders into the market for syndicated loans during the pre-2008 credit boom. Institutional investors disproportionately purchase tranches of loans originated by universal banks able to cross-sell loans and underwriting services to firms (as permitted by the repeal). A shock to cross-selling intensity increases loan liquidity at origination and over time. The mechanism is that non-loan exposures ensure monitoring even when banks retain small loan shares. Our findings complement the conventional view that regulatory arbitrage caused the rise of non-bank lenders.

Keywords: Non-bank lending; bank deregulation; credit supply; loan liquidity; industrial organization of financial markets (search for similar items in EconPapers)
JEL-codes: G20 G21 G23 G28 (search for similar items in EconPapers)
Pages: 38
Date: 2024-05
New Economics Papers: this item is included in nep-ban and nep-reg
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