Report
Non-bank financial institutions (NBFIs) control over half of global financial assets, yet the term “non-bank” is misleading. This report introduces the structures and instruments that characterise the NBFI activity and shows that banks remain central to the origination and intermediation of credit in NBFI activities. Despite the name, non-banks are far from independent of the banking system.
Growth driven by banks
The rapid expansion of private equity, hedge funds and other NBFIs is not a story of banks being replaced. It is a story of banks reshaping their own business to optimise balance sheets and reduce regulatory capital. Banks have shifted lending, risk transfer and funding activities into less regulated parts of the financial system. Far from operating in parallel, banks and NBFIs form a tightly connected ecosystem built around regulatory arbitrage and capital optimisation.
Leverage, Liquidity, and Systemic Fragility
Many NBFIs use high leverage and short-term borrowing to finance positions. While profitable in normal markets, these strategies magnify stress during downturns. Existing leverage can propagate quickly through interconnected funds, vehicles, and banks, increasing system-wide fragility. Supervisors and regulators currently lack a complete view of these channels, and vulnerabilities are largely hidden.
Rising Concerns from Regulators
Global authorities, including the IMF, FSB, ECB, and ESRB, have warned that gaps in data and transparency make it difficult to fully understand NBFI vulnerabilities. As more credit creation moves outside banking rules, equivalent oversight becomes essential. Rapid growth, complex structures, and hidden leverage combine to create potential risks to financial stability that are not yet fully appreciated, far less managed.
Read the report
This report introduces the core components of the NBFI sector and sets the stage for Part II, which will examine how these vulnerabilities could trigger wider instability and make recommendations for the regulatory response.
