Abstract:
Using global syndicated loan data, this paper shows that non-banks curtail their lending by significantly more than banks during financial crises. Conditional on unobservable lender characteristics, around half of the diverging lending behavior between banks and non-banks is explained by borrower characteristics, as non-banks serve riskier clients. Differences in the benefits of lending relationships explain most of the residual gap: unlike for banks, relationships with non-banks do not to improve borrowers’ access to credit during crises. The secular rise of non-banks could therefore exacerbate the negative effects of financial crises on the real economy.