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

Viral V. Acharya, Nicola Cetorelli and Bruce Tuckman ()
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Bruce Tuckman: https://www.stern.nyu.edu/faculty/bio/bruce-tuckman

No 1176, Staff Reports from Federal Reserve Bank of New York

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 spill over 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.

Keywords: non-bank financial intermediaries; nonbanks; shadow banking; bank regulation; regulatory arbitrage; systemic risk; credit lines; derivatives margin (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 G28 (search for similar items in EconPapers)
Pages: 29
Date: 2026-01-01
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DOI: 10.59576/sr.1176

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