The Rise of the Originate-to-Distribute Model and the Role of Banks in Financial Intermediation

14 Pages Posted: 19 Sep 2012

See all articles by Vitaly Bord

Vitaly Bord

Federal Reserve Board

João A. C. Santos

Federal Reserve Bank of New York

Date Written: September 19, 2012

Abstract

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

Bord, Vitaly and Santos, João A. C., The Rise of the Originate-to-Distribute Model and the Role of Banks in Financial Intermediation (September 19, 2012). Economic Policy Review, Vol. 18, No. 2, 21-34, July 2012, Available at SSRN: https://ssrn.com/abstract=2149136

Vitaly Bord

Federal Reserve Board ( email )

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João A. C. Santos (Contact Author)

Federal Reserve Bank of New York ( email )

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New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)

HOME PAGE: HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML

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