Bank Regulation and the Rise of Nonbank Intermediation

Celso Brunetti and Christoph Frei

No 2026-030, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study the rise of nonbank financial intermediation and its implications for systemic risk. We develop a structural network model of banks and nonbank financial institutions (NBFIs) that decomposes intermediation into a capacity channel, driven by bank balance-sheet constraints, and a reliance channel, reflecting NBFI funding reliance. Using U.S. banking confidential supervisory data, we estimate key structural parameters and quantify both channels. We find that fluctuations in bank-NBFI intermediation are primarily explained by the reliance channel, with variation in NBFI fragility emerging as the dominant driver. We show that NBFI intermediation can amplify shocks through funding interconnectedness.

Keywords: bank regulation; nonbank financial intermediation; systemic risk; financial networks; balance-sheet constraints; nonbank financial institution (NBFI) fragility; capacity and reliance channels; supervisory data (search for similar items in EconPapers)
JEL-codes: C51 D85 G21 G23 G28 (search for similar items in EconPapers)
Pages: 41 p.
Date: 2026-05-11
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:103340

DOI: 10.17016/FEDS.2026.030

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