Discussion Paper

Capitalizing on Nonbanks: Regulatory Arbitrage Within Bank Holding Companies

Abstract: When economists and policymakers talk about nonbank finance, they usually have in mind activity that takes place outside the banking system in institutions that compete with banks for the provision of financial intermediation services, such as fintech lenders, money market funds, private credit vehicles, insurers, and broker-dealers. A substantial share of U.S. nonbank financial activity, however, takes place inside bank holding companies (BHCs), conducted by nonbank subsidiaries that operate alongside regulated commercial banks under common ownership and integrated management. In this first post of our three-part series, we document the scale of nonbank activity within BHCs and describe the balance-sheet features that, as the remainder of the series shows, make these subsidiaries a vehicle for regulatory arbitrage.

JEL Classification: G21; G23; G28; G38;

https://doi.org/10.59576/lse.20260715

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2026-07-15

Number: 20260715

Note: This post is the first in a three-part series on how bank regulation interacts with the organizational structure of banking firms. The series draws on the authors’ recent Staff Report, “Regulatory Arbitrage Within the Firm.”