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February 04, 2019

FSB published a report that presents results of the eighth annual monitoring exercise, which assesses global trends and risks from nonbank financial intermediation (NBFI) in 2018. It covers data up to the end of 2017 from 29 jurisdictions, which together represent over 80% of global GDP. With the 2018 report, FSB moves away from the term shadow banking and adopts NBFI, to emphasize the forward-looking aspect of the its work. This change in terminology does not affect either the substance or the coverage of the monitoring exercise.

The report first introduces the monitoring approach of FSB, including its scope, data, and terminology. It then describes recent innovations in NBFI and provides an overview of the size and growth of all sectors in the financial system, including central banks, banks, public financial institutions, insurance corporations, pension funds, other financial intermediaries (OFIs), and financial auxiliaries.. Next, the report assesses the interconnectedness between non-bank financial entities and banks and between non-bank financial entities and cross-border linkages. Finally, the report focuses on those parts of NBFI where bank-like financial stability risks may arise. The report also features case studies that discuss various aspects of non-bank financial entities and activities in greater detail. These include fintech credit, recent developments in the leveraged loan markets and the role of non-bank financial intermediaries, the non-bank credit cycle, cross-border movements of NBFI systems, and the use of credit default swaps by non-bank financial institutions in EU.

The main findings from the 2018 monitoring exercise include the following:

  • The narrow measure of NBFI grew by 8.5% to USD 51.6 trillion in 2017, a slightly slower pace than during 2011-16. 
  • Collective investment vehicles with features that make them susceptible to runs continued to drive the overall growth of the narrow measure in 2017. 
  • Securitization-based credit intermediation increased by 9% in 2017, to account for 10% of the narrow measure, primarily driven by growth in trust company assets and securitizations.
  • In 2017, the wider OFIs in aggregate, grew by 7.6% to USD 116.6 trillion in 21 jurisdictions and the euro area, growing faster than the assets of banks, insurance corporations, and pension funds. OFI assets represent 30.5% of the total global financial assets, the largest share on record. Among the OFI sub-sectors, structured finance vehicles grew in 2017 for the first time since the financial crisis.
  • Investment funds and money market funds are the largest OFI sub-sectors that provide credit to banks. In aggregate, banks and OFIs have become marginally more interconnected through credit and funding relationships in 2017, remaining near the 2003-06 levels.

 

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Keywords: International, Banking, Insurance, Securities, NBFI, Financial Stability, Shadow Banking, Monitoring, FSB

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