When the Spare Tyre Goes Flat: Monetary Policy Transmission through Non-Banks

We examine how monetary policy transmits through non-bank lenders (NBLs) using comprehensive loan-level data covering the universe of all loans in an economy. A one-percentage-point (pp) increase in the policy rate leads NBLs to raise lending rates by 0.17 pp more than banks and to contract credit sharply on the extensive margin. We show that this amplification is driven by a liability wedge: banks’ price-insensitive deposit franchise stabilizes their funding costs, whereas NBLs rely on short-term wholesale debt that reprices immediately. This funding fragility exposes NBLs to rapid balance-sheet deterioration, resulting in higher pass-through and a stronger contraction in lending. This credit contraction spills over to the real economy, causing firms with high non-bank exposure to reduce assets, liabilities, employment, and profitability significantly more than bank-dependent firms. Consequently, we show that NBLs can act as stronger amplifiers of monetary policy than banks.