Authors: Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman
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The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
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
Transformed Intermediation: Credit Risk to NBFIs, Liquidity Risk to Banks
Number 1176
January 2026
January 2026
JEL classification: G01, G21, G23, G28
We argue that the rapid asset growth of nonbank financial intermediaries (NBFIs) relative to banks is the outcome of transformations of risks between banks and NBFIs that increase the interconnectedness of the two sectors. These transformations are consistent with avoiding tighter, post-GFC bank regulation while harnessing the funding and liquidity advantages of bank deposit franchises and access to safety nets. Specifically, we show that banks fund NBFIs through senior loans and credit lines, which NBFIs use for acquiring junior credit claims, warehouse financing, and liquidity management. We empirically demonstrate that shocks experienced by NBFIs spill over to the banks that provide them with credit lines, particularly in times of stress. We then suggest policy approaches consistent with our transformation view and conclude with suggestions for future research.
Author Disclosure Statement(s)
Viral Acharya
The author declares that (s)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 declares that (s)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 declares that (s)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 declares that (s)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 declares that (s)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 declares that (s)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. 2026. “Transformed Intermediation: Credit Risk to NBFIs, Liquidity Risk to Banks.” Federal Reserve Bank of New York Staff Reports, no. 1176, January. https://doi.org/10.59576/sr.1176
Acharya, Viral V., Nicola Cetorelli, and Bruce Tuckman. 2026. “Transformed Intermediation: Credit Risk to NBFIs, Liquidity Risk to Banks.” Federal Reserve Bank of New York Staff Reports, no. 1176, January. https://doi.org/10.59576/sr.1176
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