Banking on Nonbanks

Abstract

We study how banking groups adjust credit supply when macroprudential policies tighten. Using granular syndicated corporate loan data, we show that banking groups systematically reallocate lending from bank subsidiaries toward affiliated nonbank financial institutions (NBFIs) following regulatory tightening. NBFI subsidiaries expand their lending relative to bank subsidiaries within the same group, and also in absolute terms. By "banking on" their nonbanks, banking groups offset, on average, more than half of the contraction in bank lending induced by tighter regulation. This intra-group reallocation channel allows banking groups to partially circumvent macroprudential constraints and deepens bank-nonbank interconnectedness within

the financial system.

Keywords: Banking groups, Nonbank subsidiaries, Macroprudential policies, Cross-border lending, Syndicated loans

JEL Classification: F34, G21, G23, G28