Nonbank Lending and Credit Cyclicality

59 Pages Posted: 18 Jun 2020 Last revised: 8 Jun 2021

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

We document three facts about nonbank lending in the syndicated loan market. First, nonbank lending is more than twice as cyclical as bank lending. Second, declines in nonbank lending explain most of the declines in syndicated lending during the Great Recession and COVID-19 crisis. Third, cyclicality in nonbank lending is matched by cyclicality in nonbank funding flows. The higher nonbank cyclicality is not explained by either the health or monitoring ability of banks, nor by bank-borrower relationships. Instead, it appears to be driven by nonbank funding instability. We highlight frictions in CLOs and mutual funds that contribute to this instability.

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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