Global Monitoring Report on Non-Bank Financial Intermediation 2024 (source FSB.org here).
Note: non-bank financial intermediation sector (NBFI) or NFBI = what is commonly called Shadow banking or shadow finance.
This shadow finance is growing twice as fast as the traditional banking sector. The problem is that it is not regulated, that crises can develop there out of sight of the political and monetary authorities and that a crisis can strike without warning.
“The size of the NBFI sector grew by 8.5% in 2023, more than double the growth rate of the banking sector (3.3%), bringing the share of NBFIs in total global financial assets to 49.1 %.
Comprehensive monitoring of global trends, vulnerabilities and innovations in the non-bank financial intermediation (NBFI) sector is a key part of the FSB’s ongoing efforts to improve the resilience of the financial system. This report describes broad trends in financial intermediation across 29 jurisdictions that represent approximately 88% of global GDP, before focusing on the subset of NBFI activities that are most likely to give rise to vulnerabilities.
In 2023, the size of the NBFI sector grew by 8.5%, more than double the growth rate of the banking sector (3.3%), bringing the share of NBFIs in total global financial assets to 49. 1%. Growth in the NBFI sector has largely been attributed to rising valuations of mark-to-market instruments, which have rebounded from a significant decline in 2022. Investor inflows into NBFI entities have also contributed to this increase.
By 2023, all NBFI subsectors grew at around twice their five-year average. Assets of almost all entity types increased, with investment funds continuing to drive changes in NBFI sector asset levels. Money market fund (MMF) assets increased in the majority of reporting jurisdictions, primarily due to increased flows resulting from higher returns on MMFs relative to bank deposits as well as, in part, the banking crisis from March 2023 in the United States and Switzerland.
Financial assets of entities classified in the narrow FSB measure – the subset of NBFIs engaged in credit intermediation activity and potentially giving rise to financial stability risks – increased by 9.8% to 70,200 billion dollars, the highest level ever recorded this fiscal year. The narrow measure reflects a risk assessment based on activity-based “economic function” (EF).
Borrowing by financial institutions continued to increase in 2023, despite the higher interest rate environment. Borrowing by the NBFI sector grew at a slightly faster rate than that of banks (4.1% versus 3.4%, respectively). Captive financial institutions and broker-dealers were the entity types in the NBFI sector with the largest total borrowings, both at approximately $6.3 trillion. Real estate investment trusts (REITs), financial companies, broker-dealers and structured finance vehicles were the entity types with the highest debt levels.
Most NBFI vulnerability indicators remained stable over the past year, with fixed income and mixed funds showing high degrees of liquidity transformation, while financial firms, broker-dealers and SFVs showed relatively high debt levels. To complement the monitoring of vulnerabilities, jurisdictions also provided information on the availability of policy tools for lending activities dependent on short-term financing (mainly financial companies) and intermediation activities dependent on short-term financing ( mainly broker-dealers), detailed in Box 3-1 of the report.
The report also includes, for the first time, data on lending to non-bank fintech companies from some of the participating jurisdictions, where possible. This responds to part of the third phase of the G20 Data Gaps Initiative, which includes a recommendation to address data gaps related to lending to non-bank fintech companies.”
Charles SANNAT
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