Abstract
This paper examines how monetary policy affects credit supply from banks versus nonbank financial institutions (NBFIs) using microdata from Israel's Consumer Credit Register from 2021–23. We address identification challenges by employing monetary policy surprises and borrower-month fixed effects following Khwaja and Mian (2008), focusing on borrowers who simultaneously obtain credit from both banks and NBFIs. Our results show that monetary policy tightening leads to a significant shift in market share from banks to NBFIs in consumer credit markets. We identify the funding structure channel as a primary mechanism: following monetary tightening, NBFIs increase their reliance on long-term financing while banks do not. Using proprietary data on inter-institutional lending, we provide direct evidence that banks increase their lending to NBFIs following monetary tightening, which NBFIs then deploy to expand consumer credit.
JEL classifications: E52, E51, G21, G23.
Keywords: Monetary Policy; Banks; Nonbank Financial Institutions; Consumer Credit; Local Projection