Two economists are nervous about the idea of tougher bank regulation pushing corporate borrowers into the arms of nonbank lenders that might be less tightly regulated, or might be regulated in ways that are difficult for bank regulators to see.
Isil Erel and Eduard Inozemtsev look at those concerns in a working paper posted behind a log-in wall on the website of the National Bureau of Economic Research.
"We argue that the growth of nonbank lending exacerbates financial instability, especially in turmoil periods," the economists write. "In the recent COVID-19 crisis, nonbank lenders contributed to disruptions in corporate borrowing across various debt markets."
What it means: Life and annuity issuers have been talking about getting more high-quality investment assets by lending to companies and individuals directly.
Papers like the Erel-Inozemtsev report could eventually lead to changes in how regulators see life insurers' lending programs and debt securities purchase programs. That might or might not affect the supply of life insurance policies and annuities that the insurers offer your clients.
Publication mechanics: A working paper is a research paper that has not yet been put through a full peer review and publication process.
