Authors: Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman
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Staff Reports
Where Do Banks End and NBFIs Begin?
Number 1119
September 2024
September 2024
JEL classification: G01, G21, G23, G28
In recent years, assets of nonbank financial intermediaries (NBFIs) have grown significantly relative to those of banks. These two sectors are commonly viewed either as operating in parallel, performing different activities, or as substitutes, performing substantially similar activities, with banks inside and NBFIs outside the perimeter of banking regulation. We argue instead that NBFI and bank businesses and risks are so interwoven that they are better described as having transformed over time, rather than as having migrated from banks to NBFIs. These transformations are at least in part a response to regulation and are such that banks remain special as both routine and emergency liquidity providers to NBFIs. We support this perspective as follows: (i) the new and enhanced financial accounts data for the United States (“From Whom to Whom”) show that banks and NBFIs finance each other, with NBFIs especially dependent on banks; (ii) case studies and regulatory data show that banks remain exposed to credit and funding risks, which at first glance seem to have moved to NBFIs, and also to contingent liquidity risk from the provision of credit lines to NBFIs; and (iii) empirical work confirms bank-NBFI linkages through the correlation of their abnormal equity returns and market-based measures of systemic risk. We discuss some potential regulatory responses, including treating the two sectors holistically, recognizing the implications for risk propagation and amplification, and exploring new ways to internalize the costs of systemic risk.
Author Disclosure Statement(s)
Viral V. Acharya
The author, Viral V. Acharya, 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.
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.
Bruce Tuckman
The author, Bruce Tuckman, 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, Viral V. Acharya, 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.
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.
Bruce Tuckman
The author, Bruce Tuckman, 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:
Acharya, Viral V., Nicola Cetorelli, and Bruce Tuckman. 2024. “Where Do Banks End and NBFIs Begin?” Federal Reserve Bank of New York Staff Reports, no. 1119, September. https://doi.org/10.59576/sr.1119
Acharya, Viral V., Nicola Cetorelli, and Bruce Tuckman. 2024. “Where Do Banks End and NBFIs Begin?” Federal Reserve Bank of New York Staff Reports, no. 1119, September. https://doi.org/10.59576/sr.1119
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