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Banking·Analysis·3 min read

Lending to the lenders

Bank credit to nonbank financial institutions has grown at 22.7% a year and passed a trillion dollars. Since December 2024 the Call Report has broken it into five categories, and almost nobody is reading it institution by institution.

Abdoul Toure · Lynx Renard ·

Loans from banks to nondepository financial institutions have compounded at 22.7% a year, more than three times the rate of the next fastest category, which is multifamily. The outstanding balance passed a trillion dollars in mid-2025.

The second quarter of 2026 makes the same point from a different direction. Industry loan growth ran 6.8% over the year, and the FDIC attributes the bulk of it to lending to nondepository financial institutions and to securities-based credit. Net interest margin moved a single basis point over the same quarter, to 3.32%.

So the industry's growth is not coming from price, and a large share of it is not coming from lending to operating businesses. It is coming from lending to other lenders.

The change that made this readable

Until recently the exposure was one line. From December 2024 the Call Report requires banks to disaggregate loans to nondepository financial institutions across five categories, and to report unfunded commitments and performance alongside them.

The categories are mortgage credit intermediaries, business credit intermediaries, private equity funds, consumer credit intermediaries, and other nondepository financial institutions.

That distinction is not cosmetic. A warehouse line to a mortgage originator, a subscription facility to a private equity fund, and a facility to a consumer lender are three different exposures with three different failure modes, and they were previously indistinguishable in the public data. Now they are not, for every bank, every quarter.

What almost nobody is doing with it

The aggregate gets written about constantly. The institution-level read barely exists, and it is the one that answers the question a board actually has.

Three things are computable from a bank's own filing the moment the schedule is populated.

The mix. Which of the five categories the exposure sits in, and how that compares with the peer group. A bank whose nonbank lending is entirely mortgage warehouse has a different book from one lending to private equity funds, even at identical balances.

The undrawn position. Unfunded commitments are now reported. Utilisation on a warehouse line rises exactly when the borrower is under pressure, so the drawn balance understates the exposure in the scenario that matters, and the gap between committed and drawn is the number to watch.

The concentration against capital. The category is growing at three times the pace of anything else in the book, which means a limit set two years ago on a smaller balance may already have been passed without anyone reconvening on it.

The honest caveats

The reporting change is recent, which cuts both ways. The 50% growth reported between 2024 and 2025 is partly real growth and partly better capture, since a schedule that asks for more detail tends to find more of what it asks about. Anyone treating the first year of the disaggregated series as a clean time series will overstate the trend.

Bankers have also objected, reasonably, that the classification lumps together exposures of very different quality. A facility secured by agency mortgage collateral and a facility to an unrated consumer lender both land inside the same heading. The category is a starting point for a question, not an answer.

And the concentration is not uniform. This is predominantly a large bank exposure, and many community banks have no meaningful position in it at all. For those institutions the relevant reading is competitive rather than prudential: the growth line carrying the industry aggregate is one they cannot join at scale, which is why matching industry returns on a small balance sheet has to come from pricing, fee income or expense.

The question worth asking

Not whether lending to nonbanks is dangerous in the abstract. It plainly is not, in the aggregate, at current performance.

The question is what happens to a bank whose fastest growing exposure is credit to an intermediary that is itself levered, in a category where the undrawn commitments are large and the drawdowns correlate with stress. That is a concentration question and a liquidity question at the same time, and for the first time the data to answer it is in the filing.

Sources

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