Authors: Nicola Cetorelli and Saketh Prazad
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The growing role of nonbank financial institutions, or NBFIs, in U.S. financial markets is a transformational trend with implications for monetary policy and financial stability.
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Staff Reports
The Nonbank Footprint of Banks
Number 1118
September 2024
September 2024
JEL classification: G01, G21, G23, G28
U.S. bank holding companies (BHCs) have developed a very significant nonbank footprint over the years, adding thousands of specialty lenders, brokers and dealers, asset management, and insurance subsidiaries to their organizations. These nonbank subsidiaries represent a sizeable share of aggregate BHC assets and a significant component of the entire U.S. nonbank industry. We argue that liquidity management synergies are an important driver of the coexistence of commercial banks and nonbank subsidiaries within BHCs. Using unique data on BHC organizational structure and financial reports, we show that in the unrestricted pre-crisis regulatory environment, commercial banks within BHCs with a large nonbank footprint hold fewer liquid assets and more loans on their balance sheet. We show that our results are driven by explicit and implicit intracompany funding arrangements between affiliated banks and nonbanks. Post-GFC banking regulation, like resolution planning and liquidity regulation, has disrupted liquidity synergies and has caused BHCs to scale back their nonbank footprint.
Author Disclosure Statement(s)
Nicola Cetorelli
The author, Nicola Cetorelli, declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Saketh Prazad
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
The author, Nicola Cetorelli, declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Saketh Prazad
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Cetorelli, Nicola, and Saketh Prazad. 2024. “The Nonbank Footprint of Banks Disclosures.” Federal Reserve Bank of New York Staff Reports, no. 1118, September. https://doi.org/10.59576/sr.1118
Cetorelli, Nicola, and Saketh Prazad. 2024. “The Nonbank Footprint of Banks Disclosures.” Federal Reserve Bank of New York Staff Reports, no. 1118, September. https://doi.org/10.59576/sr.1118
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