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Less Bank Regulation, More Non-Bank Lending

Author

Listed:
  • Chen, Mary
  • Lee, Seung Jung
  • Neuhann, Daniel
  • Saidi, Farzad

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

  • Chen, Mary & Lee, Seung Jung & Neuhann, Daniel & Saidi, Farzad, 2023. "Less Bank Regulation, More Non-Bank Lending," CEPR Discussion Papers 18044, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18044
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    More about this item

    Keywords

    Non-banks; Glass-steagall act; Bank regulation;
    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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