Less Bank Regulation, More Non-Bank Lending

Mary Chen (), Seung Jung Lee (), Daniel Neuhann () and Farzad Saidi ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, 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: 37
Date: 2023-04
New Economics Papers: this item is included in nep-ban and nep-reg
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