Skip to content

GRA · Financial Stability

Spatial financeWhere capital meets hazard, exposure and transition

Nonbank financial intermediation

A growing share of credit and liquidity transformation happens outside banks: in money market funds, open-ended investment funds, hedge funds, private credit vehicles, insurers and pension funds. Nonbanks bring diversity and can also build leverage and liquidity mismatch without bank-style safeguards. This page sets out how nonbank vulnerabilities develop and transmit stress, how they are measured, and which authorities decide.

01Register

Nonbank financial intermediation on the record.

02The question

Nonbank financial intermediation: how the risk develops.

Funds, credit and liquidity connections. The dossier below sets out how the risk develops, what is measured, where the data come from, how it is modelled and who decides.

Mechanism

Liquidity mismatch invites runs

Funds that offer daily redemptions while holding less liquid assets give early redeemers an advantage. In stress, redemptions accelerate and force asset sales.

Mechanism

Hidden leverage builds

Derivatives, repo and prime brokerage give nonbanks leverage that is not always visible to any single lender. Losses force deleveraging across counterparties at once.

Mechanism

Margin calls drain cash

Sharp price moves trigger variation margin calls. Nonbanks that are unprepared sell assets or draw on credit lines, transmitting stress to markets and banks.

Mechanism

Links back to banks

Banks lend to, provide credit lines to and trade with nonbanks. Stress in nonbanks returns to banks through these links, and through common asset holdings.

03Monitor

Systemic risk dashboard.

The screen a team would use to follow this subject: its measures, states and decisions. Names are examples and values are illustrative.

Systemic risk dashboard

Nonbank financial intermediation · Financial system · Committee meeting 2

Housing vulnerabilities elevatedGRA · Financial Stability

Vulnerabilities heat map

percentile vs history, 0 to 100

Exposure network

red: most connected node

Credit-to-GDP gap

Systemic risk dashboard: the screen's structure, terms and states for Nonbank financial intermediation.Example names and illustrative values; a design, not a record or a live system.
04Indicators

What is measured, and how well.

Each indicator carries its unit, its cadence, the kind of source behind it and the evidence label a value would carry. No values are shown: a programme supplies them under its own authority.

IndicatorUnitCadenceSource typeLabel
Nonbank financial intermediation assetscurrency and share of financial assetsannualFSB Global Monitoring ReportPublished statistics
Narrow measure of nonbank intermediation by economic functioncurrencyannualFSB Global Monitoring ReportPublished statistics
Open-ended fund liquidity mismatchshare of assets in less liquid holdingsquarterlyFund regulatory reportingESTIMATED
Hedge fund leveragegross notional exposure over net asset valuequarterlyForm PF statisticsPublished statistics
Money market fund flowscurrency per weekweeklyFund industry and regulator dataREPORTED
Bank credit lines to nonbankscurrencyquarterlySupervisory dataPublished statistics
05Exposure, loss and capital

What nonbank financial intermediation means for exposure, loss and capital.

The exposure, loss, scenario and capital views a risk officer, supervisor or ministry of finance would ask for, with the frameworks they report against. Structures follow supervisory and actuarial practice. Values are illustrative: never prices, ratings or advice.

Transmission channels

How a shock in nonbank financial intermediation reaches credit, market, underwriting, liquidity and operational risk, and feeds back.

Channel structure after the Basel Committee's work on climate-related risk drivers and transmission channels; links shown are typical paths, not estimated exposures.
NGFS climate scenarios · Network for Greening the Financial SystemIFRS S2 Climate-related Disclosures · ISSBTCFD recommendations · Financial Stability Board TCFDPrinciples for the effective management of climate-related financial risks · Basel Committee on Banking Supervision
06Sources

Where the evidence comes from.

Named public datasets and institutional records, each with its licence class. Sources by agreement are used only under their terms and never republished.

SourceWhat it givesLicence class
FSB Global Monitoring Report on Nonbank Financial IntermediationSize, composition and risks of nonbank intermediation by jurisdictionFree, FSB terms
SEC Form PF statisticsAggregated private fund leverage and liquidity dataPublic domain
ESMA risk dashboards and fund statisticsEU fund flows, liquidity and leverage indicatorsFree, EU reuse terms
Office of Financial Research hedge fund monitorHedge fund leverage and repo dataPublic domain
IOSCO investment funds statistics reportGlobal fund industry dataFree, IOSCO terms
07Decisions

Who decides, and what the evidence serves.

Financial Stability prepares evidence. The decisions below are taken by the authorities named, under their own rules, and never by the platform.

Who decidesThe questionEvidence this page serves
Securities and fund regulatorsWhich liquidity management tools funds must have and useFund liquidity data and stress episodes
Macroprudential authorities and the FSBWhether nonbank leverage or mismatch needs policy actionSystem-wide monitoring and policy recommendations
Fund boards and managersHow to match redemption terms to asset liquidityLiquidity profiles and comparable fund practice
Bank risk committeesHow much exposure to nonbank counterparties to acceptCounterparty data and margin practice

Outputs this topic produces

  • Guide to nonbank entity types and the economic functions they perform
  • Brief on liquidity management tools in open-ended funds
  • Method note on measuring leverage across derivatives and repo
  • Questions for boards on margin preparedness
08Core questions

Shared questions the industry asks.

  1. 01

    Where is leverage outside banks?

    Borrowing through repo, derivatives and fund structures, and how visible it is.

  2. 02

    Where is liquidity mismatch?

    Funds offering frequent redemptions while holding less liquid assets.

  3. 03

    How do nonbanks connect to banks?

    Credit lines, prime brokerage, repo and origination links.

  4. 04

    What happens in a dash for cash?

    How simultaneous demand for liquidity across nonbanks affects markets.

09Mechanisms

How the risk arises and transmits.

Nonbank intermediaries perform bank-like functions without the same prudential regulation or access to central bank liquidity. This can be efficient, but it can also recreate the vulnerabilities that bank regulation addresses.

Liquidity mismatch arises when investors can redeem quickly from funds that hold assets which take time to sell. In stress, first movers may get better terms, creating incentives to run.

Leverage through derivatives and repo can be large and hard to observe. Margin calls in volatile markets force rapid deleveraging, which can move prices and spread stress.

Nonbanks are tightly linked to banks. Banks provide credit lines, repo funding and prime brokerage; nonbanks hold bank debt and buy loans. Stress can flow in both directions.

Episodes of market stress have shown that sudden demand for cash across many nonbanks can disrupt even the deepest markets, prompting central bank intervention.

10Methods and limits

How evidence is gathered, and where it stops.

Method or dataWhat it showsIts limit
Fund-level dataAssets, liquidity and redemptionsReporting varies by jurisdiction
Repo and derivatives dataLeverage and marginFragmented across trade repositories
Bank-nonbank exposure dataInterconnectionsLimited public detail
Stress simulationBehaviour under redemption and margin shocksAssumption-dependent
11Methods

How it is studied, and what the methods cannot say.

  1. Financial economics and macro-financeRun incentives in funds and banks · Leverage cycles · Implicit guaranteesApplied here
  2. Network science and contagionInterbank contagion simulation · Common exposure networks · Multilayer networksApplied here
  3. Scenario design and stress testingMacro-financial scenario design · System-wide exercises · Reverse stress testsApplied here
  4. EconometricsEarly warning indicators · Quantile regression for growth-at-risk · Spillover estimationApplied here
13Questions

Questions and answers.

What is nonbank financial intermediation?
Credit and financial intermediation by entities other than banks, such as funds, insurers, pension funds and finance companies. The FSB monitors it globally.
Why can open-ended funds face runs?
If redemptions are paid at a price that does not reflect the cost of selling less liquid assets, early redeemers gain at the expense of those who stay, which encourages early exit.
What did the FSB recommend on nonbank leverage?
Its final report recommends that authorities monitor leverage, address risks in core markets, strengthen counterparty risk management and address inconsistent treatment, with flexibility in how each jurisdiction acts.
Is nonbank finance shadow banking?
The older term covered part of it. Nonbank financial intermediation is the broader, neutral description now used by researchers.
Does GRA assess funds?
No. It assesses no fund or manager and gives no investment advice.
Why does nonbank leverage matter to banks?
Because banks fund and trade with nonbanks, so nonbank deleveraging can create losses and liquidity demands at banks.
ReportsContribute

Contribute evidence from this page.

Reports is the Consortium's quarterly publication. What you know about this subject can become evidence, a case or a correction in the next edition, credited to you and published under CC BY 4.0 where it is your own work.

Global Risks AllianceFinancial StabilityScenario and Stress-TestGlobal Systems Risk and Resilience
Financial Stability

Bring an exposure or capital question to the Alliance.

Information and enquiries are open today. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.