Less Bank Regulation, More Non-Bank Lending
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.
Keywords: Non-bank lending; Bank deregulation; Credit supply; Loan liquidity; Industrial organization of financial markets;
JEL Classification: G20; G21; G23; G28;
File(s): File format is application/pdf https://www.federalreserve.gov/econres/feds/files/2023026pap.pdf
Provider: Board of Governors of the Federal Reserve System (U.S.)
Part of Series: Finance and Economics Discussion Series
Publication Date: 2023-05-05