Less Bank Regulation, More Non-Bank Lending

Mary Chen (mary.chen@bos.frb.org), Seung Jung Lee, Daniel Neuhann (daniel.neuhann@mccombs.utexas.edu) and Farzad Saidi
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Daniel Neuhann: https://www.mccombs.utexas.edu/faculty-and-research/faculty-directory/daniel-neuhann/

No 2023-026, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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 p.
Date: 2023-05-05
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-26

DOI: 10.17016/FEDS.2023.026

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