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Unformatted text preview: substitute between other assets and
lending to bank-dependent borrowers. Each of these assumptions was less obviously
defensible after the financial innovations and regulatory changes of the 1980s and
1990s. Adrian and Shin (forthcoming a, b) discuss the changing structure of the
U.S. financial system in more detail.
Nonbank financial intermediaries became increasingly important as sources of
credit, particularly as a result of the growing popularity of securitization. Figure 1A
shows the contributions of several categories of financial institutions to total net
lending in the United States; while commercial banks are clearly still important,
they are far from the only important source of credit. More importantly, both the
recent lending boom and the more recent financial crisis had more to do with
changes in financial flows of several of the other types shown in the figure; for
example, lending by issuers of asset-backed securities surged in the period up until
the summer of 2007 and then crashed, while lending by market-based mutual funds
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