Sound familiar to 2008?: “changes in the 90s enhanced asset securitization, shifting the prevalent mode of financial intermediation from a bank-centric model of taking deposits & issuing loans (holding them to maturity) to a new model where loans were packaged into securities & sold to investors.”

by Dismal-Jellyfish

Source: libertystreeteconomics.newyorkfed.org/2023/11/the-nonbank-shadow-of-banks/

TLDRS:

Fed paper:

• The evolution of banks and nonbanks is closely linked, particularly since the 1990s.
• In the 1990s, financial ‘innovation’ and regulatory changes boosted asset securitization.
  • This shifted financial intermediation from a traditional bank-centric model (taking deposits, issuing loans, and holding them to maturity) to a new model where loans were packaged into securities and sold to investors.
• With this shift, nonbank activities like specialty lending, market making, asset management, and insurance gained prominence, which supported the securitization process.
• After the Global Financial Crisis (GFC), the number of NBFI subsidiaries decreased notably.
  • This coincided with the largest BHCs becoming subject to “living wills” under the Dodd-Frank Act.
• Despite these changes, the connection between banks and NBFIs may not have disappeared but could have transformed into a different form, continuing the trend of banks adapting to regulatory boundaries.

dismal-jellyfish.com/banks-nonbanks-changing-dynamics-in-finance/