Search Results
Working Paper
Defining Households That Are Underserved in Digital Payment Services
US households that lack digital means of making and receiving payments cannot participate fully in an increasingly digitized economy. Assessing the scope of this problem and addressing it requires a definition of households that are underserved in digital payments. Traditional definitions of households underserved in the banking system—those that are unbanked and those that are underbanked—do not account for the ownership of nonbank transaction accounts that can be used to make and receive digital payments. In this paper, we define households underserved in digital payments by considering ...
Discussion Paper
Capitalizing on Nonbanks: Regulatory Arbitrage Within Bank Holding Companies
When economists and policymakers talk about nonbank finance, they usually have in mind activity that takes place outside the banking system in institutions that compete with banks for the provision of financial intermediation services, such as fintech lenders, money market funds, private credit vehicles, insurers, and broker-dealers. A substantial share of U.S. nonbank financial activity, however, takes place inside bank holding companies (BHCs), conducted by nonbank subsidiaries that operate alongside regulated commercial banks under common ownership and integrated management. In this first ...
Report
Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance
We study how intermediaries—mortgage servicers—shaped the implementation of mortgage forbearance during the COVID-19 pandemic and use servicer-level variation to trace out the causal effect of forbearance on borrowers. Forbearance provision varied widely across servicers. Small servicers and nonbanks, especially nonbanks with small liquidity buffers, facilitated fewer forbearances and saw a higher incidence of forbearance-related complaints. Easier access to forbearance substantially increased mortgage nonpayment but also reduced delinquencies outside of forbearance. Part of the liquidity ...
Report
Transformed Intermediation: Credit Risk to NBFIs, Liquidity Risk to Banks
We argue that the rapid asset growth of nonbank financial intermediaries (NBFIs) relative to banks is the outcome of transformations of risks between banks and NBFIs that increase the interconnectedness of the two sectors. These transformations are consistent with avoiding tighter, post-GFC bank regulation while harnessing the funding and liquidity advantages of bank deposit franchises and access to safety nets. Specifically, we show that banks fund NBFIs through senior loans and credit lines, which NBFIs use for acquiring junior credit claims, warehouse financing, and liquidity management. ...
Report
The role of technology in mortgage lending
Technology-based (?FinTech?) lenders increased their market share of U.S. mortgage lending from 2 percent to 8 percent from 2010 to 2016. Using market-wide, loan-level data on U.S. mortgage applications and originations, we show that FinTech lenders process mortgage applications about 20 percent faster than other lenders, even when controlling for detailed loan, borrower, and geographic observables. Faster processing does not come at the cost of higher defaults. FinTech lenders adjust supply more elastically than other lenders in response to exogenous mortgage demand shocks, thereby ...
Journal Article
Interest Rates and Nonbank Market Share in the U.S. Mortgage Market
Differences in business models help explain how banks gain market share from nonbanks when interest rates are high.
Report
Non-Bank Financial Institutions and Banks’ Fire-Sale Vulnerabilities
Banks carry significant exposures to nonbanks from direct dealings, but they can also be exposed, indirectly, through losses in asset values resulting from fire-sale events. We assess the vulnerability of U.S. banks to fire sales potentially originating from any of twelve separate nonbank segments and identify network-like externalities driven by the interconnectedness across nonbank types in terms of asset holdings. We document that such network externalities can contribute to very large multiples of an original fire sale, thus suggesting that conventional assessments of fire-sale ...
Discussion Paper
Banks Develop a Nonbank Footprint to Better Manage Liquidity Needs
In a previous post, we documented how, over the past five decades, the typical U.S. bank has evolved from an entity mainly focused on deposit taking and loan making to a more diversified conglomerate also incorporating a variety of nonbank activities. In this post, we show that an important driver of the evolution of this new organizational form is the desire of banks to efficiently manage liquidity needs.
Report
Regulatory Arbitrage Within the Firm
Regulation shapes the boundaries of firms. When prudential standards bind asymmetrically across subsidiaries of an integrated organization, internal capital markets become a mechanism for regulatory arbitrage. We study this in U.S. banking, where holding companies encompass both heavily regulated depository institutions and lightly regulated nonbank affiliates. Following Basel III in 2015, holding companies extract equity from nonbank subsidiaries to recapitalize their banks. Bank subsidiaries accumulate 5-8 percentage points more excess capital than comparable standalone banks through ...
Working Paper
Understanding Bank and Nonbank Credit Cycles: A Structural Exploration
We explore the structural drivers of bank and nonbank credit cycles using an estimated medium-scale macro model that allows for bank and nonbank financial intermediation. We posit economy-wide aggregate and sectoral disturbances to potentially drive bank and nonbank credit growth. We find that sectoral shocks affecting the balance sheets of entrepreneurs who borrow from the financial sector are important for the business cycle frequency fluctuations in bank and nonbank credit growth. Economy-wide entrepreneurial risk shocks gain predominance for explaining the longer-horizon comovement ...