DP14989 Nonbanks, Banks, and Monetary Policy: U.S. Loan-Level Evidence since the 1990s

Author(s): David Elliott, Ralf Meisenzahl, José Luis Peydró, Bryce C. Turner
Publication Date: July 2020
Keyword(s): consumer loans, monetary policy, Mortgages, Nonbank lending, Shadow banks, syndicated loans
JEL(s): E51, E52, G21, G23, G28
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14989

We show that credit supply effects and associated real effects of monetary policy depend on the size of nonbank presence in the respective lending market. Nonbank presence also alters how monetary policy affects the distribution of risk. For identification, we use exhaustive loan-level data since the 1990s and Gertler-Karadi (2015) monetary policy shocks. First, different from the literature showing that low monetary policy rates increase credit supply and risk-taking by banks, we find that higher monetary policy rates shifts credit supply for corporates, mortgages, and consumers shifts from regulated banks to less regulated, more fragile nonbanks. Moreover, this shift is more pronounced for ex-ante riskier borrowers. Second, nonbanks reduce the effectiveness of the bank lending channel of monetary policy at the loan-level. However, this reduction varies substantially across lending markets. Total credit and real effects are largely neutralized in consumer loans and the associated consumption, but not in corporate loans and investment.