The Nonbank Footprint of Banks

Nicola Cetorelli and Saketh Prazad ()

No 1118, Staff Reports from Federal Reserve Bank of New York

Abstract: U.S. bank holding companies (BHCs) have developed a significant nonbank footprint over the last five decades, accounting for a sizable share of both BHC assets and the broader nonbank financial sector. We argue that this structure is partly explained by internal capital markets: when affiliates face imperfectly correlated liquidity outflows, internal transfers reduce the need for precautionary buffers. Using unique data on BHC structure and intracompany funding balances, we find evidence that affiliates provide implicit liquidity insurance through internal transfers, and that the BHC organizational scope responds to shocks that affect the value of this insurance. Our findings suggest that internal liquidity insurance plays a central role in determining both firm boundaries and asset allocation in modern financial groups.

Keywords: banking firm; bank holding companies; firm boundaries; nonbank financial institutions; liquidity synergies; bank regulation (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 G28 (search for similar items in EconPapers)
Pages: 55
Date: 2024-09-01
New Economics Papers: this item is included in nep-ban and nep-fmk
Note: Revised November 2025.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.59576/sr.1118

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