Review of Cleveland Federal Reserve Bank paper on bank lending to NBFIs

The Cleveland Federal Reserve Bank recently conducted research on the overall risk exposure of bank lending to nonbank financial institutions (NBFIs). Direct bank lending to the nonfinancial business sector in the U.S. has decreased in recent decades. However, bank lending to NBFIs, which then lends the money directly to the nonfinancial business sector has dramatically increased in recent years. What then is the true credit risk exposure to bank loans made to NBFIs? The researcher used the Federal Reserve’s novel issuer-to-holder data to create an estimate of the share of lending by NBFIs to nonfinancial businesses that are indirectly financed by the banking sector. This episode reviewed a research paper from the Federal Reserve Bank of Cleveland titled “How much nonbank business lending is indirectly funded by banks? Some evidence from a new data set.” A link to the research paper is included below. Link:  How Much Nonbank Business Lending Is Indirectly Funded by Banks? Some Evidence from a New Data Set