FDIC QUARTERLY
31
1
We combine the categories of GSEs and agency- and GSE-backed mortgage pools because Financial Accounting Standards Board
Statements No. 166 and No. 167 resulted in the consolidation of a large amount of securitized loan balances back onto lender
balance sheets in first quarter 2010. Ginnie Mae mortgage pools are classified as agency- and GSE-backed mortgage pools.
2
The complete list of other financial companies is monetary authority, property-casualty insurance company, life insurance
company, private pension fund, federal government retirement fund, state or local government retirement fund, mutual fund,
ABS issuer, finance company, real estate investment trust, broker-dealer, holding company, and funding corporation.
BANK AND NONBANK LENDING OVER THE PAST 70 YEARS
Introduction In recent years, some banking activities and their inherent risks have migrated from banks
to nonbanks. While banks have increased their share of outstanding loans since the finan-
cial crisis, a significant portion of residential mortgage lending and leveraged lending has
migrated out of banks. Government-sponsored enterprises (GSEs) loosened their residential
mortgage underwriting criteria, and nonbanks markedly increased their residential mort-
gage origination and servicing, which may increase risks to the financial system.
Banks’ origination and distribution to nonbanks of a large volume of covenant-lite lever-
aged loans also have the potential to create unexpected vulnerabilities during a downturn.
Competition between banks and nonbank financial companies may affect lending standards
and strategies. Banks also have nonbank financial companies as customers, and this may
expose banks to risk in many ways.
The FDIC continues to study the changing nature of the lending market and specific sectors,
how banks are responding to the growth of nonbank lenders in certain lending areas, and
the implications of these potential risks for the banking sector and the economy. This article
provides an overview of broad trends in lending markets. The first two sections describe
the lenders that are active in the market and summarize lending from 1952 to 2018. The last
three sections discuss bank and nonbank lending in specific lending markets. Accompany-
ing articles discuss residential mortgage lending and corporate debt in more detail.
Types of Lenders and
Loan Holders
Many types of companies lend money, and some companies fund lending markets by
purchasing loans. Some companies, like banks and credit unions, originate loans and either
hold them on their balance sheets as assets or sell them to other investors. Other businesses,
such as nonbank mortgage lenders and other finance companies, tend to have more limited
balance sheet capacity and generally follow an originate-to-distribute model. These institu-
tions originate loans to sell them immediately to investors. Other investors—like life insur-
ance companies and some issuers of asset-backed securities (ABS)—do not originate many
loans but purchase existing loans from originators. Life insurance companies purchase loans
to hold as assets, while issuers of ABS buy and bundle the loans into securities, which they
sell to investors.
In this article, loan holders are grouped according to Federal Reserve Flow of Funds catego-
ries. The main categories are banks, credit unions, GSEs, issuers of ABS, other financial
companies, and nonfinancial companies. We separate banks and credit unions because their
business lines and strategies differ in some ways. GSEs are federally chartered corporations:
Fannie Mae, Freddie Mac, Federal Home Loan Banks, Farmer Mac, and the Farm Credit
System, following the definitions in the Flow of Funds for GSEs and agency- and GSE-
backed mortgage pools, unless otherwise noted. Ginnie Mae is wholly owned by the federal
government and guarantees mortgage-backed securities (MBS) backed by mortgages that are
insured by federal agencies.
1
Other financial companies include entities like finance compa-
nies, which make loans to hold or to sell; insurance companies, which tend to purchase loans
as assets; and issuers of ABS, which purchase loans to securitize them.
2
The nonfinancial
group includes the government, nonprofits, nonfinancial businesses, and households, and all
of these hold loans as assets.