The Rise of the Originate-to-Distribute Model and the Role of Banks in Financial Intermediation
14 Pages Posted: 19 Sep 2012
Date Written: September 19, 2012
To what extent have U.S. banks adopted the originate-to-distribute model in their corporate lending business? According to our findings, banks have increasingly used the originate-to-distribute model in their term-loan business since the early 1990s. However, they have continued to rely on the traditional originate-to-hold model in their credit-line business. We also find that as banks retained smaller and smaller portions of the term loans they originated in their balance sheet, they were fueling the growth of nonbank institutions — in particular, collateralized loan obligations and investment management companies. Our findings have several important implications, including the growing significance of reliance on measures of the credit that banks originate, as opposed to measures of the credit they retain in their balance sheets, for evaluating the importance of banks in financial intermediation. Also, our findings show that over the past two decades banks have been a key driver of the growth in nonbank financial intermediation — and shadow banking in particular — in the United States.
Keywords: Securitization, CLOs, shadow banking
JEL Classification: G21, G23
Suggested Citation: Suggested Citation