10 posts on "Nicola Cetorelli"
July 16, 2026
How Basel III Changes Where Capital Sits: Nonbank Subsidiaries as Equity Reservoirs
This post is the second in a three-part series on how bank regulation interacts with the organizational structure of banking firms. The first post documented that nonbank subsidiaries inside bank holding companies (BHCs) are large, equity-rich “reservoirs,” and that bank-level capital diverged sharply from consolidated capital after Basel III took effect in 2015. This post asks why, and traces the answer through the internal plumbing of the holding company. The series draws on the authors’ recent Staff Report, “Regulatory Arbitrage Within the Firm.”
July 15, 2026
Capitalizing on Nonbanks: Regulatory Arbitrage Within Bank Holding Companies
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.”
May 8, 2026
Stress and Strain from NBFIs to Banks
Do the recent stresses in the NBFI space—notably the bankruptcies of Tricolor and First Brands, and the decision of Blue Owl Capital Corp II (OBDC II) to end its redemption program and return capital through a wind-down of the fund—create distress for banks? The general sentiment is that the recent stresses are unlikely to amount to systemic concerns, although it does not mean there might not be “some stress and strain” for banks and that policymakers are “watching carefully” for exposure across banks. In a series of previous posts, we showed that shocks to nonbank financial institutions (NBFIs) directly impact banks that have exposures to NBFIs. In this post, we show that bank stocks have been directly impacted by NBFIs yet again. In short, NBFI troubles do result in “stress and strain” for banks.
November 18, 2025
Banks Develop a Nonbank Footprint to Better Manage Liquidity Needs
In a previous post, we documented how, over the past five decades, the typical U.S. bank has evolved from an entity mainly focused on deposit taking and loan making to a more diversified conglomerate also incorporating a variety of nonbank activities. In this post, we show that an important driver of the evolution of this new organizational form is the desire of banks to efficiently manage liquidity needs.
U.S. Banks Have Developed a Significant Nonbank Footprint
In light of the rapid growth of nonbank financial institutions (NBFIs), many have argued that bank-led financial intermediation is on the decline, based on the traditional notion that banks operate to take in deposits and make loans. However, we argue that deposit-taking and loan-making have not accurately characterized U.S. banking operations in recent decades. Instead, as we propose in this post, absent regulatory restrictions, banks naturally expand their boundaries to include NBFI subsidiaries. A significant component of the growth of NBFIs has in fact taken place inside the boundaries of banking firms.
June 17, 2024
Nonbanks Are Growing but Their Growth Is Heavily Supported by Banks
Traditional approaches to financial sector regulation view banks and nonbank financial institutions (NBFIs) as substitutes, one inside and the other outside the perimeter of prudential regulation, with the growth of one implying the shrinking of the other. In this post, we argue instead that banks and NBFIs are better described as intimately interconnected, with NBFIs being especially dependent on banks both for term loans and lines of credit.
April 18, 2023
Monitoring Banks’ Exposure to Nonbanks: The Network of Interconnections Matters
The first post in this series discussed the potential exposure of banks to the open-end funds sector, by virtue of commonalities in asset holdings that expose banks to balance sheet losses in the event of an asset fire sale by these funds. In this post, we summarize the findings reported in a recent paper of ours, in which we expand the analysis to consider a broad cross section of non-bank financial institution (NBFI) segments. We unveil an innovative monitoring insight: the network of interconnections across NBFI segments and banks matters. For example, certain nonbank institutions may not have a meaningful asset overlap with banks, but their fire sales could nevertheless represent a vulnerability for banks because their assets overlap closely with other NBFIs that banks are substantially exposed to.
Enhancing Monitoring of NBFI Exposure: The Case of Open‑End Funds
Non-bank financial institutions (NBFIs) have grown steadily over the last two decades, becoming important providers of financial intermediation services. As NBFIs naturally interact with banking institutions in many markets and provide a wide range of services, banks may develop significant direct exposures stemming from these counterparty relationships. However, banks may be also exposed to NBFIs indirectly, simply by virtue of commonality in asset holdings. This post and its companion piece focus on this indirect form of exposure and propose ways to identify and quantify such vulnerabilities.
June 16, 2020
Outflows from Bank‑Loan Funds during COVID‑19
The COVID-19 pandemic has put significant pressure on debt markets, especially those populated by riskier borrowers. The leveraged loan market, in particular, came under remarkable stress during the month of March. Bank-loan mutual funds, among the main holders of leveraged loans, suffered massive outflows that were reminiscent of the outflows they experienced during the 2008 crisis. In this post, we show that the flow sensitivity of the loan-fund industry to the COVID-19 crisis (and to negative shocks more generally) seems to be even greater than that of high-yield bond funds, which also invest in high-risk debt securities and have received much attention because of their possible exposure to run-like behavior by investors and their implications for financial stability.
Posted at 7:00 am in Crisis, Financial Institutions, Financial Intermediation, Liquidity, Pandemic | Permalink | Comments (2)
May 22, 2020
Have the Fed Swap Lines Reduced Dollar Funding Strains during the COVID‑19 Outbreak?
In March 2020, the Federal Reserve made changes to its swap line facilities with foreign central banks to enhance the provision of dollars to global funding markets. Because the dollar has important roles in international trade and financial markets, reducing these strains helps facilitate the supply of credit to households and businesses, both domestically and abroad. This post summarizes the changes made to central bank swap lines and shows that these changes were effective at bringing down dollar funding strains abroad.
RSS Feed
Follow Liberty Street Economics
