We document three facts about nonbank lending in the syndicated loan market. First, nonbank lending is more than twice as cyclical as bank lending. Second, declines in nonbank lending explain most of the declines in syndicated lending during the Great Recession and COVID-19 crisis. Third, cyclicality in nonbank lending is matched by cyclicality in nonbank funding flows. The higher nonbank cyclicality is not explained by either the health or monitoring ability of banks, nor by bank-borrower relationships. Instead, it appears to be driven by nonbank funding instability. We highlight frictions in CLOs and mutual funds that contribute to this instability.
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