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Bank Regulation and the Rise of Nonbank Intermediation

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Abstract

We study the rise of nonbank financial intermediation and its implications for systemic risk. We develop a structural network model of banks and nonbank financial institutions (NBFIs) that decomposes intermediation into a capacity channel, driven by bank balance-sheet constraints, and a reliance channel, reflecting NBFI funding reliance. Using U.S. banking confidential supervisory data, we estimate key structural parameters and quantify both channels. We find that fluctuations in bank-NBFI intermediation are primarily explained by the reliance channel, with variation in NBFI fragility emerging as the dominant driver. We show that NBFI intermediation can amplify shocks through funding interconnectedness.

Suggested Citation

  • Celso Brunetti & Christoph Frei, 2026. "Bank Regulation and the Rise of Nonbank Intermediation," Finance and Economics Discussion Series 2026-030, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:103340
    DOI: 10.17016/FEDS.2026.030
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • 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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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