Nonbank Lending and Credit Cyclicality

93 Pages Posted: 18 Jun 2020 Last revised: 23 Dec 2023

See all articles by Quirin Fleckenstein

Quirin Fleckenstein

HEC Paris - Finance Department

Manasa Gopal

Georgia Institute of Technology - Scheller College of Business

German Gutierrez Gallardo

New York University (NYU) - Leonard N. Stern School of Business, Students

Sebastian Hillenbrand

Harvard University - Business School (HBS)

Date Written: June 17, 2020

Abstract

Prior work identifies bank health as a key driver of syndicated lending fluctuations, particularly during the Global Financial Crisis. We show that the relationship between bank health and lending weakens considerably once we account for the impact of nonbanks on loan originations. Weaker banks originated more nonbank loans pre-crisis and reduced their originations more during the crisis, as nonbanks withdrew. Comparing banks and nonbanks over multiple credit cycles, we find that the cyclicality of nonbanks’ credit supply is more than three times higher. We show - empirically and theoretically - that theories of heterogeneous financial frictions can explain the evidence.

Keywords: Nonbanks, credit cyclicality, CLOs, mutual funds, leveraged lending, COVID-19, Great Recession

JEL Classification: G21, G23, E32, E44, G01

Suggested Citation

Fleckenstein, Quirin and Gopal, Manasa and Gutierrez Gallardo, German and Hillenbrand, Sebastian, Nonbank Lending and Credit Cyclicality (June 17, 2020). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3629232 or http://dx.doi.org/10.2139/ssrn.3629232

Quirin Fleckenstein

HEC Paris - Finance Department ( email )

France

Manasa Gopal (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://https://manasagopal.com/

German Gutierrez Gallardo

New York University (NYU) - Leonard N. Stern School of Business, Students ( email )

NY
United States

Sebastian Hillenbrand

Harvard University - Business School (HBS) ( email )

Boston, MA 02163
United States

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