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Do the recent stresses in the NBFI space\u2014notably the bankruptcies of Tricolor and First Brands, and the decision of Blue Owl Capital Corp II (OBDC II) to end its redemption program and return capital through a wind-down of the fund\u2014create distress for banks? The general sentiment is that the recent stresses are unlikely to amount to systemic concerns, although it does not mean there might not be \u201csome stress and strain<\/a>\u201d for banks and that policymakers are \u201cwatching carefully<\/a>\u201d for exposure across banks.\u00a0In a series of previous posts, we showed that shocks to nonbank financial institutions (NBFIs) directly impact banks that have exposures to NBFIs. In this post, we show that bank stocks have been directly impacted by NBFIs yet again.\u00a0In short, NBFI troubles do result in \u201cstress and strain\u201d for banks.<\/p>\n The Bank-NBFI Interaction<\/p>\n NBFIs have grown rapidly since the financial crisis of 2007-09 and now constitute more than 50 percent<\/a> of total global financial assets. In addition, in the U.S., bank lending to NBFIs seems to have accounted for all of the bank lending growth in 2025<\/a>.\u00a0Indeed, banks\u2019 credit exposures to the broader NBFI sector are quite large and diffuse. From publicly available<\/a> regulatory filings as of year-end 2025, there were about fifty bank holding companies with total credit exposures (that is, on-balance sheet loans and undrawn commitments) to NBFI obligors that exceeded 100 percent of their Tier 1 equity capital, with the more extreme exposures being 4 to 6 times as much. Notably, many of these institutions are regional bank<\/a>s (that is, they have assets of $10-100 billion).<\/p>\n We have argued in several pieces, from April 2024<\/a> to more recently<\/a>, that NBFI growth should be viewed not as migrations of intermediation activities from banks to NBFIs, but as transformations of activities. The transformations are at least in part motivated by regulatory arbitrage, in which NBFIs retain junior credit exposure to borrowers while banks extend senior loans and contingent credit lines to NBFIs. Furthermore, we have shown empirically that the NBFI and bank sectors have become more intertwined since the financial crisis, and that shocks to NBFIs do spill over to banks, particularly through the NBFI drawdowns of bank credit lines.<\/p>\n Turbulence in both the NBFI and banking sectors over the last several quarters provides an opportunity to revisit our analysis. Most notably, in September 2025, several NBFIs (for example, collateralized loan obligations; asset-backed securities; trade finance funds; warehouse lenders; business development companies (BDCs); and other private credit funds) were shaken by the Tricolor and First Brands bankruptcies<\/a>. These bankruptcies raised broad concerns about credit quality throughout the sector and, more narrowly, drove listed BDCs to trade at a discount and sparked significant and widely publicized redemption requests from some non-traded BDCs. And, at the end of January 2026, Anthropic\u2019s launch of artificial intelligence (AI) automation tools for legal and related business tasks intensified concerns about the credit quality of software-sector loans. Over the same period, bank stocks fluctuated in a wide range.<\/p>\n To what extent did shocks to NBFIs spill over to banks with exposures to NBFIs, despite the seniority of bank claims and credit lines? The chart below compares the cumulative return in asset-weighted average stock prices of banks that have high exposures to NBFIs with those that have low exposures. The returns are normalized to zero on February\u00a017, 2026, the day before OBDC II\u2019s announcement mentioned earlier, a negative news event in the NBFI space. The average stock returns for the more exposed banks are below those with low exposure, and the gap seems persistent over many days. This evidence supports the idea that banks with greater exposure to NBFIs were more adversely affected by these credit market stresses.<\/p>\n Stock Prices for Banks Based on NBFI Exposure After February\u00a017, 2026<\/p>\n Cumulative change in stock price, percent<\/p>\n \tSources: Bank returns data from Center for Research in Security Prices (CRSP); Bank NBFI Exposure and Assets data from FR Y-9C regulatory filings. Of course, correlation does not necessarily imply causation. It may be that the banks with high exposures to NBFIs and the NBFIs themselves are exposed to a common set of risk factors that induce a correlation between bank returns and NBFI distress.<\/p>\n To lend better support to the proposition that NBFI distress might be causing bank distress, we do the following.<\/p>\n First, we focus on NBFI and bank distress around multiple recent events: the sudden bankruptcy filing of Tricolor on September 10, 2025; the bankruptcy filing of First Brands, with word spreading around September 22, 2025; and the event used in the chart above, Blue Owl\u2019s announcement about its OBDC II fund on February 18, 2026.<\/p>\n Second, we regress each bank\u2019s stock return on the S&P 500 return index.<\/p>\n Third, we calculate each bank\u2019s daily, abnormal return\u2014that is, the difference between the stock return and the predicted return from the above market regression. Note that, by construction, these abnormal returns are after accounting for any market-wide, common factors driving the performance of both banks and NBFIs.<\/p>\n Fourth, we calculate cumulative abnormal returns (CAR) for each bank as the sum of its abnormal returns from five days before to five days after each of the three event dates we consider.<\/p>\n Finally, we estimate cross-sectional regressions of these CARs on our metric of banks\u2019 NBFI exposure, controlling for bank-specific characteristics, such as their total asset size and Tier 1 ratio, as reported by banks at the end of the quarter before each event date.\u00a0<\/p>\n We report the results of these regressions in the table below. The first three columns provide the estimates for each of the three events, while the fourth column shows the results of a regression where we pooled the three events together.<\/p>\n Bank Cumulative Abnormal Returns Around Three NBFI-related Stress Events<\/p>\n Bank CARSept 10 Sources: Bank returns data from Center for Research in Security Prices (CRSP); Bank NBFI Exposure, Assets, and Tier 1 Capital data from FR Y-9C regulatory filings. These results suggest that banks with greater exposure to NBFIs experience worse abnormal returns over periods of distress in the NBFI sector. Furthermore, the estimates are economically significant. For instance, from the estimated coefficient from the pooled regression (fourth column in the table), increasing NBFI exposures by 2\u00a0standard deviations (approximately 15 percent) decreases cumulative abnormal returns of banks around the three events by about 1.2 percent (0.078 x 15\u00a0percent).\u00a0 This is a sizable effect, considering that the mean CAR calculated across all banks over rolling 10-day windows since January 2025 is about 0.04 percent.<\/p>\n Summing Up<\/p>\n Why do exposure to NBFIs drive bank stress? A relatively benign possibility is that NBFI difficulties foreshadow reduced bank earnings.\u00a0As mentioned earlier, bank lending to NBFIs has grown substantially and loans to NBFIs are particularly profitable. Because of their seniority these loans receive favored capital treatment. Another possibility is that NBFI drawdowns on credit lines are likely to be correlated with each other and with broader demands on bank liquidity, which could stress bank resources, including bank capital against drawn down balances. Finally, the most worrisome possibility is that NBFI losses in extreme scenarios result in actual bank losses on loans and credit lines, despite their seniority, either directly or through markdowns of assets falling in value due to fire sales or impairment.<\/p>\n Although the precise mechanism by which NBFI distress spills over to banks is a subject for future research, the resulting \u201cstress and strain\u201d for banks seems to be an empirical regularity that should be of interest to investors and regulators.<\/p>\n Viral V. Acharya is a professor of finance at New York University Stern School of Business.<\/p>\n Nicola Cetorelli<\/a> is head of Financial Intermediation in the Federal Reserve Bank of New York\u2019s Research and Statistics Group.\u00a0<\/p>\n Bruce Tuckman is a professor of finance at New York University Stern School of Business.<\/p>\n \n How to cite this post: @article{AcharyaCetorelliTuckman2026, Disclaimer
Notes: The chart plots cumulative percentage changes (relative to February 17, 2026) in asset-weighted average bank stock prices for banks with high and low NBFI exposure. Banks are classified according to whether NBFI exposure (NBFI loans + unused commitments) \/ assets is above or below the 75th percentile of all banks in a given quarter. Within each NBFI Exposure group, stock prices are averaged using bank assets as weights.<\/p>\n
(1)Sept 22
(2)Feb 18
(3)Pooled
(4)NBFI Exposure \/ Assets-0.072***-0.078**-0.071***-0.078***(0.025)(0.032)(0.026)(0.024)Log Total Assets0.003**0.006***-0.006***-0.001(0.001)(0.001)(0.001)(0.001)Tier 1 Capital Ratio-0.0010.001-0.001-0.000(0.001)(0.001)(0.001)(0.000)Constant-0.072***-0.134***0.082***-0.045***(0.019)(0.021)(0.021)(0.016)Number of Banks211211203211Observations211211203625Adjusted R20.0390.0960.2190.033Standard errors in parentheses (clustered by Bank in column 4).
* p<0.10, ** p<0.05, *** p<0.01<\/p>\n
Notes: Bank cumulative abnormal returns (CAR) is calculated by summing abnormal returns five days before and five days after event date specified in column title. NBFI expsoure is loans + unused commitments to NBFIs. Loans, unused commitments, assets and Tier 1 capital are lagged one quarter. \u201cPooled\u201d indicates CAR regression estimated over September 10, 2025; September 22, 2025; and February 18, 2026 in one regression.<\/p>\n![\"Portrait](\"https:\/\/www.newsbeep.com\/us-ny\/wp-content\/uploads\/2026\/05\/cetorelli_nicola_90x90.jpg\")
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Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman, \u201cStress and Strain from NBFIs to Banks,\u201d Federal Reserve Bank of New York Liberty Street Economics, May 8, 2026, https:\/\/doi.org\/10.59576\/lse.20260511<\/a>
\n BibTeX: View<\/a> | Download\n <\/p>\n
\n author={Acharya, Viral V. and Cetorelli, Nicola and Tuckman, Bruce},
\n title={Stress and Strain from NBFIs to Banks},
\n journal={Liberty Street Economics},
\n note={Liberty Street Economics Blog},
\n number={May 8},
\n year={2026},
\n url={https:\/\/doi.org\/10.59576\/lse.20260511}
\n}<\/p>\n
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).<\/p>\n","protected":false},"excerpt":{"rendered":"Viral V. Acharya, Nicola Cetorelli, and Bruce Tuckman Do the recent stresses in the NBFI space\u2014notably the bankruptcies…\n","protected":false},"author":2,"featured_media":224441,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[1534,88235,9,11,10,88236,88237,88238],"class_list":["post-224440","post","type-post","status-publish","format-standard","has-post-thumbnail","category-new-york","tag-banks","tag-nbfis","tag-new-york","tag-new-york-headlines","tag-new-york-news","tag-nicola-cetorelli","tag-non-bank-financial-institutions","tag-viral-v-acharya"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/224440","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/comments?post=224440"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/224440\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media\/224441"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media?parent=224440"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/categories?post=224440"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/tags?post=224440"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}