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Evolution of Debt Financing Toward Less-Regulated Financial Intermediaries in the United States

Published online by Cambridge University Press:  01 April 2024

Isil Erel Open the ORCID record for Isil Erel [Opens in a new window]  and
Eduard Inozemtsev Open the ORCID record for Eduard Inozemtsev [Opens in a new window]
Isil Erel*
Affiliation:
The Ohio State University Fisher College of Business, NBER, and ECGI
Eduard Inozemtsev
Affiliation:
The University of Melbourne [email protected]
*
[email protected] (corresponding author)
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Abstract

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Nonbank lenders have been playing an increasing role in supplying debt, especially after the Great Recession. How important are the distortions in the greater regulation of banks that differentially limit risk-taking across alternative providers of credit? How might the growing role of nonbanks in credit markets affect financial stability? This selective review addresses these questions and discusses how banks and nonbanks helped provide liquidity to the nonfinancial sector during the COVID-19 pandemic shock. We argue that tighter bank regulation has created incentives for nonbanks to increase their participation in credit markets, a trend that creates concerns about financial stability.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 38
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This article was prepared for the Federal Reserve Bank of Boston’s 65th Economic Conference, “The Implications of High Leverage for Financial Instability Risk, Real Economic Activity, and Appropriate Policy Responses.” We would like to thank Ran Duchin (the editor), Victoria Ivashina (discussant), and Philip Strahan (the referee) for their very helpful comments. All errors are our own.

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