Board of Governors of the Federal Reserve System
05/26/2026 | Press release | Distributed by Public on 05/26/2026 12:56
Bank Regulation and the Rise of Nonbank Intermediation
May 2026
Bank Regulation and the Rise of Nonbank Intermediation
Celso Brunetti, Christoph Frei
Abstract:
We study the rise of nonbank financial intermediation and its implications for systemic risk. We develop a structural network model of banks and nonbank financial institutions (NBFIs) that decomposes intermediation into a capacity channel, driven by bank balance-sheet constraints, and a reliance channel, reflecting NBFI funding reliance. Using U.S. banking confidential supervisory data, we estimate key structural parameters and quantify both channels. We find that fluctuations in bank-NBFI intermediation are primarily explained by the reliance channel, with variation in NBFI fragility emerging as the dominant driver. We show that NBFI intermediation can amplify shocks through funding interconnectedness.
Keywords: Bank regulation; nonbank financial intermediation; systemic risk; financial networks; balance-sheet constraints; NBFI fragility; capacity and reliance channels; supervisory data
DOI: https://doi.org/10.17016/FEDS.2026.030
PDF: Full Paper
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