As banks rein in their risk-taking, we can expect that market-based finance will play a larger role than it currently does. We can see this happening already. For starters, in some markets companies increasingly fund themselves by issuing bonds on the market.
In the U.S., while bank dealers have significantly reduced their inventories of corporate bonds, non-bank lenders have increased their holdings of corporate bonds. Whether they are structured as asset managers, insurers, non-bank financial firms or retail investors, these groups are opportunistically filling the void that traditional bankers have created. Securitization is another market-based channel that could really expand in this new world.