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Less Bank Regulation, More Non-Bank Lending

Author

Listed:
  • Mary Chen
  • Seung Jung Lee
  • Daniel Neuhann
  • Farzad Saidi

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.

Suggested Citation

  • Mary Chen & Seung Jung Lee & Daniel Neuhann & Farzad Saidi, 2023. "Less Bank Regulation, More Non-Bank Lending," CRC TR 224 Discussion Paper Series crctr224_2023_418, University of Bonn and University of Mannheim, Germany.
  • Handle: RePEc:bon:boncrc:crctr224_2023_418
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp418
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    Cited by:

    1. Sharjil M. Haque & Simon Mayer & Teng Wang, 2024. "How Private Equity Fuels Non-Bank Lending," Finance and Economics Discussion Series 2024-015, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    Non-bank lending; bank deregulation; credit supply; loan liquidity; industrial organization of financial markets;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • 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

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