Capitalizing on Nonbanks: Regulatory Arbitrage Within Bank Holding Companies

Nicola Cetorelli and Shohini Kundu ()
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Shohini Kundu: https://www.anderson.ucla.edu/faculty-and-research/finance/faculty/kundu

No 20260715, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: When economists and policymakers talk about nonbank finance, they usually have in mind activity that takes place outside the banking system in institutions that compete with banks for the provision of financial intermediation services, such as fintech lenders, money market funds, private credit vehicles, insurers, and broker-dealers. A substantial share of U.S. nonbank financial activity, however, takes place inside bank holding companies (BHCs), conducted by nonbank subsidiaries that operate alongside regulated commercial banks under common ownership and integrated management. In this first post of our three-part series, we document the scale of nonbank activity within BHCs and describe the balance-sheet features that, as the remainder of the series shows, make these subsidiaries a vehicle for regulatory arbitrage.

Keywords: banks; nonbanks; bank holding companies (BHCs); regulation; arbitrage; boundaries of the firm (search for similar items in EconPapers)
JEL-codes: G21 G23 G28 G38 (search for similar items in EconPapers)
Date: 2026-07-15
Note: This post is the first in a three-part series on how bank regulation interacts with the organizational structure of banking firms. The series draws on the authors’ recent Staff Report, “Regulatory Arbitrage Within the Firm.”
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DOI: 10.59576/lse.20260715

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