Nonbank lenders as global shock absorbers: evidence from US monetary policy spillovers

We show that nonbank lenders act as global shock absorbers from US monetary policy spillovers. For identification, we exploit loan‑level data from the global syndicated lending market and US monetary policy surprises. We find that when US monetary policy tightens, nonbanks increase dollar credit supply to non‑US firms (relative to banks), mitigating the reduction in dollar credit. This increase is stronger for riskier firms, proxied by emerging market firms, high‑yield firms, or firms in countries with stronger capital inflow restrictions. However, these results are not driven by firm‑lender matching, zombie lending, fragile‑nonbank lending, or periods of low versus higher local GDP growth. Furthermore, the substitution from bank to nonbank credit has firm‑level real effects. In sum, despite increased risk‑taking by less regulated and more fragile nonbanks (relative to banks), access to nonbank credit reduces the volatility in capital flows – and associated economic activity – stemming from US monetary policy spillovers, with important implications for theory and policy.