Aggregate Lending and Modern Financial Intermediation: Why Bank Balance Sheet Models Are Miscalibrated

Macroprudential, monetary, and fiscal policies are frequently passed through the financial intermediation sector or implemented directly through financial intermediaries (Kashyap and Stein 2000; Hanson, Kashyap, and Stein2011). The modern industrial organization of financial intermediation differs from the traditional view of bank balance sheet lending in two dimensions (Buchak et al. 2018, 2024). Specifically, nondepository institutions — that is, shadow banks — now account for a substantial share of lending in many markets, and banks now sell a significant fraction of the loans they originate through securitization. We argue that accounting for the modern industrial organization of financial intermediation is essential in two respects.