Press

New report: Europe must level up supervision and regulation of shadow banking

06 May 2026 - 00:01 h

Press Release

A new Finance Watch report recommends reforms to better detect and manage risks in non-bank finance before they impact wider financial stability.

The recent turmoil in private credit is a warning. In 2026, funds have capped withdrawals, banks have tightened lending to the sector, and supervisors are asking how exposed banks could be if stress spreads.

The risks building up in shadow banking are not theoretical, and supervisors are still missing key information. A new Finance Watch report exposes the multilayered links between banks and non-banks and calls for urgent reforms to close regulatory gaps and blind spots in supervision.

According to the Financial Stability Board, non-bank financial institutions now account for over 51% of global financial assets. But it is not just assets that have moved beyond banks…

“Risk has moved beyond banks, but it remains a threat to the whole financial system. Today, that risk is hard to see, hard to price and hard to contain during stress. The ECB recently warned that even banks do not always have a full picture of their own private credit exposures*. Europe must now level up the regulatory and supervisory regime for non-bank finance. Where the risk goes, regulation and supervision must follow.”

Christian M. Stiefmueller

The Finance Watch report, ‘Systemic risk from shadow banking’, sets out recommendations:

Detect the risk

Critical information on concentration risk and indirect leverage remains fragmented and incomplete. Necessary data must be made available to, and more effectively shared between, competent authorities and regulators.
EU level system-wide stress tests are needed to identify interconnections between NBFIs and banks.

Manage the risk

Major non-bank financial institutions are now systemically important and should be treated as such. Europe needs a holistic supervisory framework for systemically important non-banks, stronger reporting requirements, stronger EU-level supervision and tools to curb excessive leverage, liquidity mismatches and regulatory arbitrage.
The EU should also finish the job on existing reforms, including money market fund liquidity buffers and minimum haircuts for securities financing transactions, while giving supervisors the power to remove flawed or overly risky products and practices from the market.

“Private credit is just one of many warning signs from the non-bank world. These risks are becoming harder to ignore and harder to contain. The next financial crisis may start outside banks, and if it does, it will not stay there.”

Christian M. Stiefmueller

Money market funds came under severe stress in 2020 and the market only calmed after central banks intervened. Archegos, a highly leveraged family office, collapsed in 2021. Greensill Capital, a supply chain finance company, failed the same year. These failures undermined confidence in one of Europe’s largest banks, which ultimately collapsed and required an emergency takeover backed by public money. So far, extraordinary responses and public support have limited wider consequences. But that cannot be guaranteed next time.

The warnings are getting louder. The rules must keep up.

Notes for editors

December 2025: The FSB reported non-bank financial intermediation reached USD 256.8 trillion in 2024, accounting for 51% of global financial assets and growing at twice the pace of banks. Flagged limitations in regulatory data for private credit.
February 2026: The ECB and ESRB warned links between banks and NBFIs can amplify stress in adverse market conditions. Around 15% of euro area bank balance sheets are funded by NBFIs, mainly through deposits, repo funding and purchases of bank debt securities.
February 2026: The FSB warned government bond-backed repo markets enable leverage, increase reliance on short-term funding and amplify shocks across the financial system.
*March 2026: The ECB warned banks cannot systematically identify when they lend alongside private credit funds to the same company, meaning exposures and concentration risks can be underestimated.

Upcoming (May 2026) – ECB financial stability review will tackle private credit, and the FSB is due to publish a dedicated report on private credit

Read the Report Here