IDEAS home Printed from https://ideas.repec.org/p/fip/fednsr/98819.html
   My bibliography  Save this paper

The Nonbank Footprint of Banks

Author

Abstract

U.S. bank holding companies (BHCs) have developed a very significant nonbank footprint over the years, adding thousands of specialty lenders, brokers and dealers, asset management, and insurance subsidiaries to their organizations. These nonbank subsidiaries represent a sizeable share of aggregate BHC assets and a significant component of the entire U.S. nonbank industry. We argue that liquidity management synergies are an important driver of the coexistence of commercial banks and nonbank subsidiaries within BHCs. Using unique data on BHC organizational structure and financial reports, we show that in the unrestricted pre-crisis regulatory environment, commercial banks within BHCs with a large nonbank footprint hold fewer liquid assets and more loans on their balance sheet. We show that our results are driven by explicit and implicit intracompany funding arrangements between affiliated banks and nonbanks. Post-GFC banking regulation, like resolution planning and liquidity regulation, has disrupted liquidity synergies and has caused BHCs to scale back their nonbank footprint.

Suggested Citation

  • Nicola Cetorelli & Saketh Prazad, 2024. "The Nonbank Footprint of Banks," Staff Reports 1118, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:98819
    DOI: 10.59576/sr.1118
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1118.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://www.newyorkfed.org/research/staff_reports/sr1118.html
    File Function: Summary
    Download Restriction: no
    File URL: https://libkey.io/10.59576/sr.1118?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Nicola Cetorelli & Linda S. Goldberg, 2012. "Follow the Money: Quantifying Domestic Effects of Foreign Bank Shocks in the Great Recession," American Economic Review, American Economic Association, vol. 102(3), pages 213-218, May.
    2. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.
    3. Evan Gatev & Philip E. Strahan, 2006. "Banks' Advantage in Hedging Liquidity Risk: Theory and Evidence from the Commercial Paper Market," Journal of Finance, American Finance Association, vol. 61(2), pages 867-892, April.
    4. Manasa Gopal & Philipp Schnabl, 2022. "The Rise of Finance Companies and FinTech Lenders in Small Business Lending," The Review of Financial Studies, Society for Financial Studies, vol. 35(11), pages 4859-4901.
    5. Gregor Matvos & Amit Seru, 2014. "Resource Allocation within Firms and Financial Market Dislocation: Evidence from Diversified Conglomerates," The Review of Financial Studies, Society for Financial Studies, vol. 27(4), pages 1143-1189.
    6. Venkat Kuppuswamy & Belén Villalonga, 2016. "Does Diversification Create Value in the Presence of External Financing Constraints? Evidence from the 2007–2009 Financial Crisis," Management Science, INFORMS, vol. 62(4), pages 905-923, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Atanasova, Christina & Willeboordse, Frederick H., 2025. "The impact of corporate diversification on liquidity management: Evidence from lines of credit," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 101(C).
    2. Szczygielski, Jan Jakub & Charteris, Ailie & Obojska, Lidia & Brzeszczyński, Janusz, 2025. "Energy in turmoil: Industry resilience to uncertainty during the global energy crisis," Applied Energy, Elsevier, vol. 389(C).
    3. Degryse, H.A. & Elahi, M.A. & Penas, M.F., 2012. "Determinants of Banking System Fragility : A Regional Perspective," Discussion Paper 2012-015, Tilburg University, Center for Economic Research.
    4. Velasco, Pilar, 2022. "Is bank diversification a linking channel between regulatory capital and bank value?," The British Accounting Review, Elsevier, vol. 54(4).
    5. Min Dai & Xavier Giroud & Wei Jiang & Neng Wang, 2020. "A q Theory of Internal Capital Markets," NBER Working Papers 27931, National Bureau of Economic Research, Inc.
    6. Patrick Bielstein & Mario Fischer & Christoph Kaserer, 2018. "The cost of capital effect of M&A transactions: Disentangling coinsurance from the diversification discount," European Financial Management, European Financial Management Association, vol. 24(4), pages 650-679, September.
    7. Olivier De Jonghe & Hans Dewachter & Klaas Mulier & Steven Ongena & Glenn Schepens, 2020. "Some Borrowers Are More Equal than Others: Bank Funding Shocks and Credit Reallocation [A theory of systemic risk and design of prudential bank regulation]," Review of Finance, European Finance Association, vol. 24(1), pages 1-43.
    8. Curi, Claudia & Murgia, Maurizio, 2018. "Divestitures and the financial conglomerate excess value," Journal of Financial Stability, Elsevier, vol. 36(C), pages 187-207.
    9. Viral V. Acharya & Nicola Cetorelli & Bruce Tuckman, 2024. "Where Do Banks End and NBFIs Begin?," NBER Working Papers 32316, National Bureau of Economic Research, Inc.
    10. Correa, Ricardo & Sapriza, Horacio & Zlate, Andrei, 2021. "Wholesale funding runs, global banks' supply of liquidity insurance, and corporate investment," Journal of International Economics, Elsevier, vol. 133(C).
    11. Matthieu Chavaz & David Elliott, 2020. "Separating retail and investment banking: evidence from the UK," Bank of England working papers 892, Bank of England.
    12. Che, Xin & Liebenberg, Andre P., 2017. "Effects of business diversification on asset risk-taking: Evidence from the U.S. property-liability insurance industry," Journal of Banking & Finance, Elsevier, vol. 77(C), pages 122-136.
    13. Iskenderoglu, Cansu, 2025. "The value of diversification: ESG and investment in controversial industries," Finance Research Letters, Elsevier, vol. 76(C).
    14. Mamatzakis, Emmanuel & Bermpei, Theodora, 2014. "What drives investment bank performance? The role of risk, liquidity and fees prior to and during the crisis," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 102-117.
    15. Stijn Claessens, 2019. "Fragmentation in global financial markets: good or bad for financial stability?," BIS Working Papers 815, Bank for International Settlements.
    16. Vicente Cuñat & Dragana Cvijanović & Kathy Yuan, 2018. "Within-Bank Spillovers of Real Estate Shocks," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 7(2), pages 157-193.
    17. Almaghrabi, Khadija S., 2022. "COVID-19 and the cost of bond debt: The role of corporate diversification," Finance Research Letters, Elsevier, vol. 46(PB).
    18. Rüdiger Fahlenbrach & Kevin Rageth & René M Stulz, 2021. "How Valuable Is Financial Flexibility when Revenue Stops? Evidence from the COVID-19 Crisis [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5474-5521.
    19. Koch, Cathérine Tahmee, 2014. "Risky adjustments or adjustments to risks: Decomposing bank leverage," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 242-254.
    20. Li, Zongyuan & Lai, Rose Neng, 2024. "Are “too big to fail” banks just different in size? – A study on systemic risk and stand-alone risk," International Review of Financial Analysis, Elsevier, vol. 93(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:98819. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gabriella Bucciarelli (email available below). General contact details of provider: https://edirc.repec.org/data/frbnyus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.