Nonbanks, Banks, and Monetary Policy: U.S. Loan-Level Evidence since the 1990s

Abstract

We analyze the effects of monetary policy on nonbank and bank credit supply to firms and households, in particular the associated real effects and the distribution of risk. For identification, we use exhaustive loan-level data since the 1990s and Gertler-Karadi (2015) monetary policy shocks. First, different from the literature showing that low monetary policy rates increase risk-taking in bank loans, we find that higher monetary policy rates lead to an expansion of credit supply and more risk-taking by nonbank lenders. During monetary contractions, credit supply for corporates, mortgages, and consumers shifts from regulated banks to less regulated, more fragile nonbanks. Moreover, this shift is more pronounced for ex-ante riskier borrowers. Second, nonbanks reduce the effectiveness of the bank lending channel of monetary policy at the loan-level. However, this reduction varies substantially by borrower type. Total credit and real effects are largely neutralized in consumer loans and the associated consumption, but not in corporate loans and investment.