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
Date Revised: August 2021
Keyword(s): banks, Credit and Risk-Taking Channel, Household and Corporate Loans, monetary policy transmission, Nonbank Intermediaries
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 nonbanks (funds, shadow banks, fintech) affect the transmission of monetary policy to output, prices and the distribution of risk via credit supply. For identification, we exploit exhaustive US loan-level data since the 1990s, borrower-lender relationships and Gertler-Karadi monetary policy shocks. Higher policy rates shift credit supply from banks to nonbanks, thereby largely neutralizing associated consumption effects (via consumer loans), while just attenuating firm investment and house price spillovers (via corporate loans and mortgages). Moreover, different from the risk-taking channel, higher policy rates increase risk-taking, as less-regulated, more fragile nonbanks -in all credit markets- expand supply, especially to riskier borrowers.