The Non-Bank Credit Channel

This paper studies the macroeconomic implications of the rise of non-bank financial intermediaries (NBIs) --- institutional investors ranging from insurance companies to bond mutual funds --- in U.S. corporate credit markets. Contrary to commercial banks, NBIs are not levered financial intermediaries, and do not face default risk. Some NBIs, because of their funding structure, nevertheless face redemption risk. We provide a framework to analyze the implications of these differences in funding structure for macroeconomic and financial stability. Relative to banks, NBIs do not necessarily promote macroeconomic and financial stability, especially when redemption risk is high. However, regulatory attempts at constraining redemptions have little macroeconomic impact unless NBIs hold sufficient capital buffers.