Working Paper

Bank Regulation and the Rise of Nonbank Intermediation

Abstract: We study the rise of nonbank financial intermediation and its implications for systemic risk. We develop a structural network model of banks and nonbank financial institutions (NBFIs) that decomposes intermediation into a capacity channel, driven by bank balance-sheet constraints, and a reliance channel, reflecting NBFI funding reliance. Using U.S. banking confidential supervisory data, we estimate key structural parameters and quantify both channels. We find that fluctuations in bank-NBFI intermediation are primarily explained by the reliance channel, with variation in NBFI fragility emerging as the dominant driver. We show that NBFI intermediation can amplify shocks through funding interconnectedness.

JEL Classification: G21; G23; G28; C51; D85;

https://doi.org/10.17016/FEDS.2026.030

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2026-05-11

Number: 2026-030