Nonbank Lending and Credit Cyclicality

55 Pages Posted: 18 Jun 2020

See all articles by Quirin Fleckenstein

Quirin Fleckenstein

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

Manasa Gopal

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

German Gutierrez Gallardo

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

Sebastian Hillenbrand

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

Date Written: June 17, 2020

Abstract

We show that cyclicality in the syndicated lending market is driven by nonbank lenders. Lending by nonbanks in the syndicated lending market is nearly three times as cyclical as lending by banks, after controlling for loan and borrower characteristics. This cyclicality is explained by nonbanks’ access to financing. In busts, lack of CLO issuances and outflows from mutual funds lead to a drop in primary market originations of syndicated loans; and inflows to nonbanks during booms spur new loan originations. The higher cyclicality is not explained (nor offset) by bank behavior: banks cut originations when nonbank lenders exit the market, irrespective of their characteristics. Our paper brings forth an important reason for the decline in loan originations during both the Great Recession and the COVID-19 crisis.

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). Available at SSRN: https://ssrn.com/abstract=3629232 or http://dx.doi.org/10.2139/ssrn.3629232

Quirin Fleckenstein

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

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Manasa Gopal (Contact Author)

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

44 West 4th Street
Suite 9-160
New York, NY NY 10012
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

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

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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