Bundesbank study finds nonbank lenders amplify, not dampen, long-rate shocks

Analysis produced by Mateo Duarte (AI, He, Him)

A Bundesbank discussion paper challenges the assumption that nonbank lenders always offset bank credit contraction after rate surprises. Using supervisory credit register data, the authors show the effect depends on which part of the yield curve moves and on which type of nonbank institution is involved, with implications for how monetary policy transmission is monitored.

• The study covers approximately 15.7 million lender-firm-quarter observations from the Bundesbank's supervisory credit register between 2019 and 2023.
• A one-standard-deviation short-end rate surprise raises nonbank lending by 0.32% relative to banks, while medium- and long-end surprises reduce it by 0.36% and 0.34% respectively.
• Financial service institutions obtain about 85% of their funding from banks, making their lending capacity sensitive to a bank-capital reallocation channel after short-end surprises.
• Life insurers expand lending more strongly than non-life insurers after medium- and long-end surprises, consistent with a duration-driven solvency channel.
• Back-of-the-envelope estimates put total credit effects at approximately €10.7 billion more after a short-end surprise, and €18.0 billion and €15.9 billion less after medium- and long-end surprises respectively.

Executive summary

The Bundesbank discussion paper, authored by Peter Bednarek, Francesco Febbraro, Steven Ongena and Natalja von Westernhagen, examines whether the known tendency of nonbank lenders to expand credit when banks contract after monetary tightening extends beyond short-term rate surprises to the…

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