Less Bank Regulation, More Non-Bank Lending

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

No 18044, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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-banks; Glass-steagall act; Bank regulation (search for similar items in EconPapers)
JEL-codes: G20 G21 G23 G28 (search for similar items in EconPapers)
Date: 2023-03
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