Iñaki Aldasoro, Sebastian Doerr, and Haonan Zhou
This paper provides first cross-country evidence on non-bank lending during crises. We show that non-banks contract their syndicated lending by over 50% more than banks during financial shocks in borrower countries. Establishing that non-banks serve riskier borrowers globally, we find that differences in borrower characteristics account for around half of the additional decline in non-bank versus bank lending. We then present evidence that non-banks’ more volatile funding explains the remaining difference. Results further show that non-banks, despite their specialization in lending to risky firms, cut credit to riskier borrowers by even more than banks. Our findings suggest that the rise of non-bank lending amplifies financial instabilities and associated real effects during financial crises.