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Less Bank Regulation, More Non-Bank Lending

Author

Listed:
  • Mary Chen

    (Federal Reserve Bank of Boston)

  • Seung Jung Lee

    (Federal Reserve Board of Governors)

  • Daniel Neuhann

    (University of Texas at Austin)

  • Farzad Saidi

    (University of Bonn & CEPR)

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.

Suggested Citation

  • Mary Chen & Seung Jung Lee & Daniel Neuhann & Farzad Saidi, 2024. "Less Bank Regulation, More Non-Bank Lending," ECONtribute Discussion Papers Series 303, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:303
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_303_2024.pdf
    File Function: First version, 2024
    Download Restriction: no
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Non-bank lending; bank deregulation; credit supply; loan liquidity; industrial organization of financial markets;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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