Discussion paper

DP18044 Less Bank Regulation, More Non-Bank Lending

Bank deregulation in the form of the repeal of the Glass-Steagall Act facilitated the entry of non-bank lenders into the market for syndicated loans during the pre-2008 credit boom. Institutional investors disproportionately purchase tranches of loans originated by universal banks able to cross-sell loans and underwriting services to firms (as permitted by the repeal). A shock to cross-selling intensity increases loan liquidity at origination and over time. The mechanism is that non-loan exposures ensure monitoring even when banks retain small loan shares. Our findings complement the conventional view that regulatory arbitrage caused the rise of non-bank lenders.


Chen, M, S Lee, D Neuhann and F Saidi (2023), ‘DP18044 Less Bank Regulation, More Non-Bank Lending‘, CEPR Discussion Paper No. 18044. CEPR Press, Paris & London. https://cepr.org/publications/dp18044