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Banks and Nonbanks Are Not Separate, but Interwoven

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Abstract

In our previous post, we documented the significant growth of nonbank financial institutions (NBFIs) over the past decade, but also argued for and showed evidence of NBFIs’ dependence on banks for funding and liquidity support. In this post, we explain that the observed growth of NBFIs reflects banks optimally changing their business models in response to factors such as regulation, rather than banks stepping away from lending and risky activities and being substituted by NBFIs. The enduring bank-NBFI nexus is best understood as an ever-evolving transformation of risks that were hitherto with banks but are now being repackaged between banks and NBFIs.

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  • Viral V. Acharya & Nicola Cetorelli & Bruce Tuckman, 2024. "Banks and Nonbanks Are Not Separate, but Interwoven," Liberty Street Economics 20240618, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:98396
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    Keywords

    non-bank financial intermediaries; nonbanks; shadow banking; bank regulation; macroprudential regulations; regulatory arbitrage; systemic risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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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