Conventional monetary interventions through the credit channel and the rise of non-bank institutions

Abstract

The amount of credit assets held by non-bank institutions has increased substantially in recent decades, to the point where it exceeded the amount held by depository institutions in the United States before the Global Financial Crisis. Our research aims to gain evidence on whether the credit channel of monetary policy, i.e. the transmission of monetary interventions through bank lending, has been altered by the enlargement of the non-bank sector. The analysis is based on the period before the Global Financial Crisis in order to apply a theory-consistent identification of conventional monetary interventions within a large Bayesian vector auto-regression. The results indicate an uncertain transmission when the non-bank sector is larger, casting doubt on the grip of monetary interventions in an evolving scenario.