The U.S. has the most dynamic financial system and capital markets in the developed world. Borrowers and lenders can access and extend credit through plentiful bank and capital market channels. The Global Financial Crisis (GFC) and its legislative repercussions curtailed banks’ risk-taking activities. Nonbank lenders (NBL) stepped into the vacuum, growing and evolving to maintain the credit creation vital to consumer and economic health.
NBL institutions broaden the availability of credit while diversifying risk across the financial system. Derided at times as the “shadow banking system,” today these lenders are an integral source of credit rivaling the traditional banking system. Lenders have excelled in creating novel products and efficiencies for borrowers – through capital markets, securitization, and investment and fund structures – that also meet private investors’ appetite for higher income with capital preservation.
Regulators and investors alike acknowledge the sizable role that NBL plays in providing credit to segments of the U.S. economy not well served by traditional commercial banks. In a July 2024 testimony to the Senate, the Federal Reserve (the Fed) Chairman Jerome Powell noted as one of the U.S. economy’s two fundamental strengths “…a highly developed ecosystem of financing sources. Banks are really not set up for that.”1
Yet as its economic importance grows, much of the NBL sector remains poorly understood and sparsely invested, offering investors attractive compensation amidst some unfamiliar risks. Our objectives for these papers are:
- Explain the rise of the $17 trillion NBL sector over the past two decades
- Demystify NBL and its lending segments
- Acquaint investors with the more attractive direct investment opportunities
- Outline a prudent framework for investing in opportunities emerging from the growth of NBL
- Help match these investments to different classes of investor
Contact Us
1 The Semiannual Monetary Policy Report to the Congress, July 9, 2024.
Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2025. All rights reserved. PB-08872-2025-08-28
