Transformed Intermediation: Credit Risk to NBFIs, Liquidity Risk to Banks

Viral Acharya, Nicola Cetorelli and Bruce Tuckman

No 21037, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We argue that the rapid asset growth of nonbank financial intermediaries (NBFIs) relative to banks is the outcome of transformations of risks between banks and NBFIs that increase the interconnectedness of the two sectors. These transformations are consistent with avoiding tighter, post-GFC bank regulation while harnessing the funding and liquidity advantages of bank deposit franchises and access to safety nets. Specifically, we show that banks fund NBFIs through senior loans and credit lines, which NBFIs use for acquiring junior credit claims, warehouse financing, and liquidity management. We empirically demonstrate that shocks experienced by NBFIs spillover to the banks that provide them with credit lines, particularly in times of stress. We then suggest policy approaches consistent with our transformation view and conclude with suggestions for future research.

JEL-codes: G01 G21 G23 G28 (search for similar items in EconPapers)
Date: 2026-01
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