The growing footprint of nonbank financial institutions in corporate credit markets raises important – but often overlooked – questions about how monetary and macroprudential policies shape credit allocation to the real economy. Using global syndicated loan data, this column shows that nonbanks act as shock absorbers, shielding nonfinancial firms from tightening in both monetary and macroprudential policies. While nonbanks provide a valuable alternative funding source for nonfinancial corporations when bank credit contracts, supporting investment and economic activity, they also pose risks: tighter monetary and macroprudential policies may contribute decisively to shifting lending outside the regulatory perimeter, amplifying financial stability risks.
Nonbank financial institutions — nonbanks for short — have significantly expanded their footprint in the global financial system over the past two decades. Their share of global financial assets rose from 43% in 2008 to 49% in 2023 (FSB 2024). As Figure 1 shows, these nonbanks — including investment banks, finance companies, insurers, pension funds, private equity firms, and other intermediaries — now account for nearly half of global corporate syndicated loan origination, up from just over 30% during the Global Crisis. While this trend is most pronounced in advanced economies (AEs), particularly the US, the broader shift from bank to nonbank intermediation affects corporate borrowers globally.
This expansion partly reflects the growing use of macroprudential policies (MaPP) since the Global Crisis. While designed to curb excess credit growth and strengthen financial resilience (Claessens 2015, Cerutti et al. 2016, 2018, Gelos et al. 2023), macroprudential policies often tighten banks’ balance sheet constraints, reducing their lending capacity and creating space for nonbanks to step in and fill the resulting funding shortfall (Buchak et al. 2018, Irani et al. 2021, Claessens et al. 2023).
Recent research also highlights the role of contractionary monetary policy (MP) in driving the nonbank expansion. Rate hikes can prompt deposit outflows from banks, further weakening their intermediation role and allowing nonbanks to gain market share (Xiao 2020, Drechsler et al. 2022, Elliott et al. 2024, Cucic and Gorea 2024).
In a new paper, we bring together several strands of the literature to examine the implications of nonbanks’ rising role in corporate credit intermediation during episodes of monetary policy and macroprudential policy tightening (Albuquerque et al. 2025). Our main finding is that nonbanks partly offset the decline in bank credit, helping sustain firms’ access to finance. Yet this shift raises financial stability concerns, as more credit flows through a less regulated, more fragile segment of the financial system — characterised by volatile funding and significant data gaps.
Figure 1 Nonbank share in the corporate syndicated loan market
Notes: Nonbank share is the loan amount outstanding intermediated by nonbanks relative to the total loan amount. Our sample includes lenders from 22 countries, as described in Albuquerque et al. (2025).
Monetary and macroprudential policy shocks
We use syndicated loan data from Dealogic covering 2000–2019, capturing nearly the entire global market for syndicated corporate loans, a key component of cross-border debt finance (Elliott et al. 2024). These loans, arranged by consortia of lenders under a common legal framework, offer rich details on loan terms, borrower profiles, and lender composition. This dataset allows us to track both bank and nonbank participation in loan origination, making it well-suited for our analysis. Our sample includes lenders from 22 countries (mostly advanced economies) and nonfinancial corporate borrowers from 153 countries, spanning both advanced economies and emerging market and developing economies (EMDEs). Notably, nonbanks account for 48% of all lenders in the sample.
To identify monetary policy shocks, we use the high-frequency series from Choi et al. (2024), who apply a hierarchical identification strategy for a large set of countries. We restrict the analysis to 22 countries for which monetary policy shocks are identified using either high-frequency external sources or central bank forecast errors.
We construct macroprudential policy shocks using the IMF’s iMaPP database (Alam et al. 2019), which records macroprudential policy actions since 1990 as binary indicators: tightening, loosening, or no change. We focus on macroprudential policies that target loan supply, including limits on credit growth, loan loss provisions, lending restrictions, loan-to-deposit ratio caps, and foreign exchange loan limits. Following Chari et al. (2022), we first build a time series of cumulative stringency indices for each country. We then address potential reverse causality and endogenous policy responses by estimating a panel regression with country fixed effects and country-specific macro-financial controls. The resulting residuals, purged of cyclical influences, serve as our macroprudential policy shocks, which we confirm are orthogonal to monetary policy shocks (Figure 2).
Figure 2 Correlation of monetary policy (MP) and macroprudential policy (MaPP) shocks for country-quarter pairs
Notes: Red line is the linear regression line between the two series.
Nonbanks mitigate the impact of contractionary policy shocks on corporate lending
Our baseline regression assesses how the supply of new syndicated loans responds to monetary and macroprudential policy shocks, focusing on differences between bank and nonbank lenders. To isolate supply effects from demand, we use firm-by-quarter fixed effects à la Khwaja and Mian (2008) to account for time-varying borrower demand. This approach relies on the assumption that each firm borrows from both a bank and a nonbank within the same quarter.
Figure 3 confirms that bank lending declines following contractionary monetary and macroprudential policy shocks. Our key finding is that nonbanks help cushion this decline: a one-standard deviation monetary policy shock leads to a 4.6% relative increase in nonbank lending to nonfinancial corporations compared to banks. Nonbank lending also rises differentially after macroprudential policy shocks, though the effect is about half as large. These results align with the deposits channel of monetary policy – tighter policy drives deposits out of banks, constraining their lending and creating room for nonbanks (Drechsler et al. 2017, Xiao 2020, Elliott et al. 2024, Cucic and Gorea 2024). For macroprudential policy shocks, the shift suggests tighter regulation may inadvertently push credit into the less-regulated nonbank sector (Kim et al. 2018, Begenau and Landvoigt 2022).
Figure 3 Effect of monetary and macroprudential policy shocks on new loans
Notes: The dependent variable is the logarithm of new syndicated loans. The blue bars indicate the effects of a one-standard deviation contractionary shock of monetary and macroprudential policy on loans provided by banks, while the orange bars refer to the differential effects of lending by nonbanks (NB) relative to banks. The regression specification controls for lender fixed effects, and for firm x time fixed effects. Standard errors clustered by firm. All effects are statistically significant at the 1% level.
In Albuquerque et al. (2025), we report several additional findings. First, the baseline results are stronger for firms with preexisting relationships with nonbanks. While the value of relationship lending with banks is well-understood, our contribution is to show that relationship lending with nonbanks offers additional protection to firms after monetary policy shocks (though the evidence is weaker following macroprudential policy shocks). Second, the interaction of monetary and macroprudential policy can further stimulate nonbank lending, though monetary policy remains the dominant driver. Finally, nonbanks not only increase loan volumes but also have lower spreads relative to banks during contractionary monetary policy shocks. While nonbanks usually charge higher rates, they narrow this gap when monetary conditions tighten. This finding is consistent with credit supply effects driving our results, rather than shifts in borrower demand.
The rising role of nonbanks in corporate credit has real economic implications. We find that after contractionary monetary and macroprudential policy shocks, firms borrowing from nonbanks tend to fare better: they invest and hire more than their peers (Figure 4). This supports our earlier finding that nonbanks help cushion the impact of policy tightening. However, these gains do not come with reduced borrower risk: if anything, default probabilities rise, though they are not precisely estimated.
Figure 4 Differential effects of monetary policy and macroprudential policy shocks on firms with a nonbank relationship
Notes: Data aggregated at the firm-quarter level. The dependent variables are the logarithm of real tangible capital expenditures, logarithm of real intangible investment, logarithm of employment, and the probability of default over the next 12 months. Each bar indicates the differential effects of a one-standard deviation contractionary shock of monetary policy and macroprudential policy on the dependent variable for firms with a nonbank relationship over the past two years. The regression specification controls for firm fixed effects and country-industry-time fixed effects. Standard errors clustered by firm. Hollow bars refer to statistically insignificant estimates at the 10% level.
The migration of corporate credit to nonbanks is particularly driven by weaker banks
We aggregate the data at the level of syndicated loan deals to examine how credit is reallocated from banks to nonbanks following contractionary policy shocks. Specifically, we test whether the nonbank loan share increases in syndicates that include weaker (less-capitalised) banks, defined as those with loan-weighted Tier 1 capital ratios in the bottom quartile in each quarter.
Figure 5 shows that a one-standard-deviation tightening in macroprudential or monetary policy increases the average nonbank share in loan syndicates by 1.8 to 2.1 percentage points. The effect is stronger when weaker banks are involved in syndicates: the nonbank share rises by an additional 1.3 percentage points after a monetary policy shock and 2.3 percentage points after a macroprudential policy shock. These are economically significant as the average difference in nonbank share between syndicates with strong versus weak banks is roughly one percentage point.
We interpret this credit reallocation as a sign that tighter policy amplifies balance sheet constraints for less-capitalised banks, reducing their lending capacity. This supports the view that post-Global Crisis regulations, while enhancing bank resilience, may have encouraged greater nonbank participation in credit markets (Buchak et al. 2018, Irani et al. 2021, Claessens et al. 2023).
Figure 5 Nonbank share and bank characteristics
Notes: Data aggregated at the syndicated loan deal level. The dependent variable is the share of loans from nonbanks in each syndicated loan deal. The blue bars indicate the effects of a one-standard deviation contractionary shock of monetary and macroprudential policy on the nonbank loan share. Orange bars refer to the differential effects on the nonbank loan share from low-capitalised (LC) banks. The regression specification controls for firm fixed effects, and for industry-location-size-time fixed effects. Standard errors clustered by firm. All effects are statistically significant at the 10% level.
Our analysis does not find evidence that nonbanks disproportionately shift lending toward riskier borrowers in response to tighter monetary or macroprudential policy shocks: the migration of credit following such policy shocks does not seem to reflect a transfer of riskier loans to the nonbank sector. Nonetheless, nonbanks tend to lend more to riskier borrowers than banks do overall, raising broader concerns about financial stability. Importantly, we find that these effects are primarily driven by nonbanks that rely on less stable sources of funding, pointing to potential systemic vulnerabilities, especially during times of financial stress (Irani et al. 2021, Aldasoro et al. 2024, Fleckenstein et al. 2025).
Banks’ increased lending to nonbank borrowers following macroprudential policy shocks helps explain the rise of nonbanks
We investigate in the paper whether the expansion of nonbank credit during tightening shocks reflects a shift in bank lending away from nonfinancial corporates and toward nonbanks. We find that after macroprudential policy tightening, banks, especially so for low-capitalised banks, reallocate credit away from nonfinancial firms and toward nonbanks. While our analysis cannot fully uncover the mechanisms behind this shift, regulatory frameworks like Basel III have likely played a role. These frameworks often assign lower risk weights to loans to nonbanks than to nonfinancial corporates, making the former more attractive for capital-constrained banks to help preserve their capital buffers.
This credit reallocation when macroprudential policies tighten may help explain the rise in nonbank lending to corporates observed in our data, as increased bank funding flows to nonbanks that, in turn, extend credit to the real economy.
Discussion
Our research highlights the growing role of nonbanks in transmitting policy shocks to the real economy. When monetary or macroprudential policy tightens, nonbanks help offset reduced bank lending to nonfinancial firms, providing an alternative funding source that can support investment and activity.
But this shift brings risks. Nonbanks typically lend to riskier borrowers, rely on more volatile funding, operate with less oversight, carry higher leverage, and typically lack access to central bank emergency liquidity facilities. These features make them more prone to amplifying financial stress, especially during downturns, given their more procyclical lending.
Balancing the benefits of nonbank credit with its risks is essential. While nonbanks can support credit flows when banks pull back, the increase in credit that moves to a less-regulated space raises financial stability concerns. Addressing these requires closing data gaps and extending macroprudential oversight to nonbanks. Expanding the regulatory perimeter — for example with leverage limits, capital and liquidity requirements, and stress testing — would help reduce regulatory arbitrage, improve policy transmission, and bolster resilience (Abbas et al. 2025).
Source: cepr.org
