Nonbank Lending and Credit Cyclicality

Abstract

We study the contribution of banks and nonbanks to cyclical fluctuations in the supply of syndicated loans. We find that a reduction in nonbank lending explains most of the contraction in syndicated credit and the associated employment losses during the Global Financial Crisis, while banks' contribution is small. Looking over multiple cycles, nonbanks' credit supply is roughly three times more cyclical than banks', suggesting that nonbanks are the main drivers of syndicated lending cycles. A model in which government support stabilizes bank funding can explain the higher cyclicality of nonbanks.

Keywords: JEL Classification: G21, G23, E32, E44, G01 Nonbanks, banks, credit cyclicality, CLOs, leveraged lending, Great Recession

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