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Coexistence of Banks and Non-Banks: Intermediation Functions and Strategies

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Abstract

What is the essence of non-bank financial intermediation? How does it emerge and interact with intermediation performed by banks? To investigate these questions, we develop a model-based survey: we classify existing models into different intermediation functions á la Merton (1995) to show that variations of them admit a common modeling structure; then, we extend or reinterpret the resulting models to connect equilibrium strategies to non-bank activities in practice. Particular emphasis is placed on the coexistence of banks and non-banks: how their competition, or the extent of cooperation through contractual arrangements, varies across intermediation functions. Through this approach we speak to a variety of entities such as traditional banks, open-end funds, special purpose vehicles, private credit entities, and fintech lenders. We also discuss innovation, regulation, and market liquidity as drivers of non-bank activities.

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  • Nicola Cetorelli & Gonzalo Cisternas & Asani Sarkar, 2025. "Coexistence of Banks and Non-Banks: Intermediation Functions and Strategies," Staff Reports 1145, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:99720
    DOI: 10.59576/sr.1145
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    References listed on IDEAS

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    4. Mr. Zoltan Pozsar, 2011. "Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System," IMF Working Papers 2011/190, International Monetary Fund.
    5. Anil K. Kashyap & Raghuram Rajan & Jeremy C. Stein, 2002. "Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit‐taking," Journal of Finance, American Finance Association, vol. 57(1), pages 33-73, February.
    6. Acharya, Viral & Cetorelli, Nicola & Tuckman, Bruce, 2024. "Where Do Banks End and NBFIs Begin?," CEPR Discussion Papers 18939, C.E.P.R. Discussion Papers.
    7. Erel, Isil & Flanagan, Thomas & Weisbach, Michael S., 2024. "Risk-Adjusting the Returns to Private Debt Funds," Working Paper Series 2024-06, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
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    9. Fang Cai & Sharjil M. Haque, 2024. "Private Credit: Characteristics and Risks," FEDS Notes 2024-02-23-2, Board of Governors of the Federal Reserve System (U.S.).
    10. Carol Bertaut & Laurie Pounder DeMarco & Steve Kamin & Ralph Tryon, 2011. "ABS Inflows to the United States and the Global Financial Crisis," NBER Chapters, in: Global Financial Crisis, National Bureau of Economic Research, Inc.
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    12. Carol Bertaut & Laurie Pounder DeMarco & Steven B. Kamin & Ralph W. Tryon, 2011. "ABS Inflows to the United States and the Global Financial Crisis," NBER Working Papers 17350, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Non-banks; banks; financial intermediation;
    All these keywords.

    JEL classification:

    • 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
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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