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Discussion Paper
The Nonbank Shadow of Banks
Cetorelli, Nicola; Prazad, Saketh (2023-11-27)
Financial and technological innovation and changes in the macroeconomic environment have led to the growth of nonbank financial institutions (NBFIs), and to the possible displacement of banks in the provision of traditional financial intermediation services (deposit taking, loan making, and facilitation of payments). In this post, we look at the joint evolution of banks—referred to as depository institutions from here on—and nonbanks inside the organizational structure of bank holding companies (BHCs). Using a unique database of the organizational structure of all BHCs ever in existence ...
Liberty Street Economics , Paper 20231127

Report
Credit quantity and credit quality: bank competition and capital accumulation
Cetorelli, Nicola; Peretto, Pietro F. (2009)
This paper shows that bank competition has an intrinsically ambiguous effect on capital accumulation and economic growth. We further demonstrate that banking market structure can be responsible for the emergence of development traps in economies that would otherwise be characterized by unique steady-state equilibria. These predictions explain the conflicting evidence gathered from recent empirical studies of how bank competition affects the real economy. Our results were obtained by developing a dynamic general-equilibrium model of capital accumulation in which banks operate in a Cournot ...
Staff Reports , Paper 375

Report
Shadow bank monitoring
Cetorelli, Nicola; Ashcraft, Adam B.; Adrian, Tobias (2013-09-01)
We provide a framework for monitoring the shadow banking system. The shadow banking system consists of a web of specialized financial institutions that conduct credit, maturity, and liquidity transformation without direct, explicit access to public backstops. The lack of such access to sources of government liquidity and credit backstops makes shadow banks inherently fragile. Shadow banking activities are often intertwined with core regulated institutions such as bank holding companies, security brokers and dealers, and insurance companies. These interconnections of shadow banks with other ...
Staff Reports , Paper 638

Working Paper
Bank competition and regulatory reform: the case of the Italian banking industry
Cetorelli, Nicola; Angelini, Paolo (1999)
This study analyzes the evolution of competitive conditions in the Italian banking industry using firm-level balance sheet data for the period 1983-1997. Regulatory reform, large-scale consolidation, and competitive pressure from other European countries have changed substantially the banking environment, with potentially offsetting effects on the overall degree of competition of the banking market. We find that competitive conditions, relatively unchanged until 1992, have improved substantially thereafter, with estimated mark-ups decreasing over the last five years of the sample period. ...
Working Paper Series , Paper WP-99-32

Conference Paper
Real effects of bank competition
Cetorelli, Nicola (2004)
Does banking market power contribute to the formation of nonfinancial industries populated by few, large firms, or does it instead enhance industry entry? Theoretical arguments could be made to support either side.
Proceedings

Report
Globalized banks: lending to emerging markets in the crisis
Goldberg, Linda S.; Cetorelli, Nicola (2009)
As banking has become more globalized, so too have the consequences of shocks originating in home and host markets. Global banks can provide liquidity and risk-sharing opportunities to the host market in the event of adverse host-country shocks, but they can also have profound effects across international markets. Indeed, global banks played a significant role in the transmission of the current crisis to emerging-market economies. Flows between global banks and emerging markets include both cross-border lending, which has long been recognized as responding significantly to shocks at home or ...
Staff Reports , Paper 377

Discussion Paper
How Fed Swap Lines Supported the U.S. Corporate Credit Market amid COVID-19 Strains
Cetorelli, Nicola; Goldberg, Linda S.; Ravazzolo, Fabiola (2020-06-12)
The onset of the COVID-19 shock in March 2020 brought large changes to the balance sheets of the U.S. branches of foreign banking organizations (FBOs). Most of these branches saw sizable usage of committed credit lines by U.S.-based clients, resulting in increased funding needs. In this post, we show that branches of FBOs from countries whose central banks used standing swap lines with the Federal Reserve (“standing swap central banks”—SSCBs) met their increased funding needs by accessing dollars that flowed into the United States through their foreign parent banks. This volume of ...
Liberty Street Economics , Paper 20200612

Discussion Paper
Were Banks 'Boring' before the Repeal of Glass-Steagall?
Cetorelli, Nicola (2017-07-31)
Since the global financial crisis and Great Recession, many critics have called for regulatory and legislative reforms to restore a system of ?boring? banks constrained to traditional banking activities like deposit taking and lending. The narrative underlying this argument holds that the partial repeal of the Glass-Steagall Act in 1999 by the Gramm-Leach-Bliley Act enabled banks to expand into nontraditional activities such as securities trading and underwriting, thereby contributing to the financial crisis some ten years later. The implication is that if we could restore the Glass-Steagall ...
Liberty Street Economics , Paper 20170731

Discussion Paper
Resolving \\"Too Big to Fail\\"
Cetorelli, Nicola; Traina, James (2018-10-02)
Many market participants believe that large financial institutions enjoy an implicit guarantee that the government will step in to rescue them from potential failure. These ?Too Big to Fail? (TBTF) issues became particularly salient during the 2008 crisis. From the government?s perspective, rescuing these financial institutions can be important to avoid harm to the financial system. The bailouts also artificially lower the risk borne by investors and the financing costs of big banks. The Dodd-Frank Act attempts to remove the incentive for governments to bail out banks in the first place by ...
Liberty Street Economics , Paper 20181002

Report
Follow the money: quantifying domestic effects of foreign bank shocks in the Great Recession
Goldberg, Linda S.; Cetorelli, Nicola (2012)
Foreign banks pulled significant funding from their U.S. branches during the Great Recession. We estimate that the average-sized branch experienced a 12 percent net internal fund ?withdrawal,? with the fund transfer disproportionately bigger for larger branches. This internal shock to the balance sheets of U.S. branches of foreign banks had sizable effects on their lending. On average, for each dollar of funds transferred internally to the parent, branches decreased lending supply by about forty to fifty cents. However, the extent of the lending effects was very different across branches, ...
Staff Reports , Paper 545

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