Nonbanks, Banks, and Monetary Policy: U.S. Loan-Level Evidence since the 1990s

70 Pages Posted: 29 Oct 2019

See all articles by David Elliott

David Elliott

Bank of England

Ralf Meisenzahl

Federal Reserve Bank of Chicago

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Bryce C. Turner

Board of Governors of the Federal Reserve System

Date Written: October 25, 2019

Abstract

We analyze the effects of monetary policy on nonbank and bank credit supply to firms and households, in particular the associated real effects and the distribution of risk. For identification, we use exhaustive loan-level data since the 1990s and Gertler-Karadi (2015) monetary policy shocks. First, different from the literature showing that low monetary policy rates increase risk-taking in bank loans, we find that higher monetary policy rates lead to an expansion of credit supply and more risk-taking by nonbank lenders. During monetary contractions, credit supply for corporates, mortgages, and consumers shifts from regulated banks to less regulated, more fragile nonbanks. Moreover, this shift is more pronounced for ex-ante riskier borrowers. Second, nonbanks reduce the effectiveness of the bank lending channel of monetary policy at the loan-level. However, this reduction varies substantially by borrower type. Total credit and real effects are largely neutralized in consumer loans and the associated consumption, but not in corporate loans and investment.

Suggested Citation

Elliott, David and Meisenzahl, Ralf and Peydro, Jose-Luis and Turner, Bryce C., Nonbanks, Banks, and Monetary Policy: U.S. Loan-Level Evidence since the 1990s (October 25, 2019). Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3475427 or http://dx.doi.org/10.2139/ssrn.3475427

David Elliott (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Ralf Meisenzahl

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://www.ralfmeisenzahl.com

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Bryce C. Turner

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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