IDEAS home Printed from https://ideas.repec.org/p/fip/fednsr/98820.html
   My bibliography  Save this paper

Where Do Banks End and NBFIs Begin?

Author

Abstract

In recent years, assets of nonbank financial intermediaries (NBFIs) have grown significantly relative to those of banks. These two sectors are commonly viewed either as operating in parallel, performing different activities, or as substitutes, performing substantially similar activities, with banks inside and NBFIs outside the perimeter of banking regulation. We argue instead that NBFI and bank businesses and risks are so interwoven that they are better described as having transformed over time, rather than as having migrated from banks to NBFIs. These transformations are at least in part a response to regulation and are such that banks remain special as both routine and emergency liquidity providers to NBFIs. We support this perspective as follows: (i) the new and enhanced financial accounts data for the United States (“From Whom to Whom”) show that banks and NBFIs finance each other, with NBFIs especially dependent on banks; (ii) case studies and regulatory data show that banks remain exposed to credit and funding risks, which at first glance seem to have moved to NBFIs, and also to contingent liquidity risk from the provision of credit lines to NBFIs; and (iii) empirical work confirms bank-NBFI linkages through the correlation of their abnormal equity returns and market-based measures of systemic risk. We discuss some potential regulatory responses, including treating the two sectors holistically, recognizing the implications for risk propagation and amplification, and exploring new ways to internalize the costs of systemic risk.

Suggested Citation

  • Viral V. Acharya & Nicola Cetorelli & Bruce Tuckman, 2024. "Where Do Banks End and NBFIs Begin?," Staff Reports 1119, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:98820
    DOI: 10.59576/sr.1119
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1119.pdf
    File Function: Full text
    Download Restriction: no

    File URL: https://www.newyorkfed.org/research/staff_reports/sr1119.html
    File Function: Summary
    Download Restriction: no

    File URL: https://libkey.io/10.59576/sr.1119?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    nonbank financial intermediaries; nonbanks; shadow banking; bank regulation; regulatory arbitrage; systemic risk; credit lines; derivatives margin;
    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:98820. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gabriella Bucciarelli (email available below). General contact details of provider: https://edirc.repec.org/data/frbnyus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.