The Financial Stability Board (FSB) published a report that presents the results of its annual monitoring exercise to assess global trends and risks in non-bank financial intermediation (NBFI). The report presents NBFI developments up to end-2020, which is the first year of the COVID-19 pandemic, covering 29 jurisdictions that account for approximately 80% of global GDP. In the report, FSB focuses on the parts of NBFI that may pose bank-like financial stability risks and/or regulatory arbitrage (the so-called narrow measure of NBFI). The report finds that, in contrast to the trend over the past decade, the NBFI sector grew less than the banking sector in 2020.
The report also highlights that the interconnectedness between banks and the NBFI sector decreased slightly in 2020. Financial interconnectedness is a feature of an open and integrated global financial system. It may help share risk across financial sectors but may also serve as a channel for risk transmission, particularly when entities along intermediation chains employ a high degree of leverage or engage in maturity/liquidity transformation. Therefore, measures of interconnectedness among banks, other financial institutions, and other non-bank financial entities can serve as important indicators of potential contagion, within and across borders. The following are some of the other key findings from this year’s monitoring exercise:
- Total global financial assets exhibited strong growth in 2020, increasing by 10.9% to $468.7 trillion. This was mainly driven by banks and central banks, which grew at their highest rate since the 2008 global financial crisis. In contrast to the trend over the past decade, the NBFI sector grew less (7.9%) than the banking sector (11.1%) in 2020. The sector’s share of total financial assets declined from 49.7% in 2019 to 48.3% in 2020.
- The narrow measure of NBFI grew by 7.4% in 2020 to $63.2 trillion, broadly in line with its annual growth rate of 7.3% between 2014 and 2019. This growth was driven mainly by collective investment vehicles with features that make them susceptible to runs, which grew by 9.0% in 2020, remaining by far the largest component of the narrow measure (75.1%). As a share of total global financial assets, the narrow measure decreased slightly from 14.1% in 2019 to 13.7% in 2020.
- Despite the substantial volatility in financial markets during the first half of 2020, measures of vulnerability in NBFI appeared broadly stable when comparing 2020 to 2019. Largely unchanged measures of credit intermediation, maturity and liquidity transformation, and leverage highlight the rapid response and impact of official sector intervention in the wake of the March 2020 market turmoil.
As part of its work program to enhance the resilience of the NBFI sector, FSB will consider further enhancements to the annual monitoring exercise in light of the COVID-19 experience.
Keywords: International, Banking, Insurance, Securities, Financial Stability, Systemic Risk, Non-Bank Financial Intermediaries, NBFI, Market-Based Finance, FSB
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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