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. However, the authors argue 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.
The full article is available at https://libertystreeteconomics.newyorkfed.org/2024/06/nonbanks-are-growing-but-their-growth-is-heavily-supported-by-banks/