Publications
Publications
- 2021
Nonbank Lending and Credit Cyclicality
By: Quirin Fleckenstein, Manasa Gopal, German Gutierrez and Sebastian Hillenbrand
Abstract
We document three facts about nonbank lending in the syndicated loan market. First, nonbank lending is more than twice as cyclical as bank lending. Second, declines in nonbank lending explain most of the declines in syndicated lending during the Great Recession and COVID-19 crisis. Third, cyclicality in nonbank lending is matched by cyclicality in nonbank funding flows. The higher nonbank cyclicality is not explained by either the health or monitoring ability of banks, nor by bank-borrower relationships. Instead, it appears to be driven by nonbank funding instability. We highlight frictions in CLOs and mutual funds that contribute to this instability.
Keywords
Nonbank Lending; Credit Cycles; CLO; Mutual Funds; Leveraged Lending; COVID-19; Great Migration; Non-bank Financial Institutions; Financing and Loans; Business Cycles
Citation
Fleckenstein, Quirin, Manasa Gopal, German Gutierrez, and Sebastian Hillenbrand. "Nonbank Lending and Credit Cyclicality." Working Paper, June 2021.