The Global Risks Alliance (GRA)
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.
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Nonbank financial intermediation is credit and liquidity transformation by funds, insurers, pension funds and other entities outside the banking sector. Its vulnerabilities are liquidity mismatch, hidden leverage and unprepared margin needs, which return to banks through credit lines and common assets. Fund regulators, the FSB and boards hold the decisions.
The working screen behind this subject: its structure, terms and states. Names are placeholders and values illustrative.
Nonbank financial intermediation · Financial system · Committee meeting 2
percentile vs history, 0 to 100
red: most connected node
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.
Funds that offer daily redemptions while holding less liquid assets give early redeemers an advantage. In stress, redemptions accelerate and force asset sales.
Derivatives, repo and prime brokerage give nonbanks leverage that is not always visible to any single lender. Losses force deleveraging across counterparties at once.
Sharp price moves trigger variation margin calls. Nonbanks that are unprepared sell assets or draw on credit lines, transmitting stress to markets and 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.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Liquidity mismatch | A gap between how quickly investors can withdraw and how quickly a fund can sell its assets without loss. |
| Swing pricing | Adjusting a fund's price so redeeming or subscribing investors bear the trading costs they cause. |
| Synthetic leverage | Leverage obtained through derivatives rather than borrowing, which may not appear on the balance sheet. |
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.
| Indicator | Unit | Cadence | Source type | Label |
|---|---|---|---|---|
| Nonbank financial intermediation assets | currency and share of financial assets | annual | FSB Global Monitoring Report | OFFICIAL |
| Narrow measure of nonbank intermediation by economic function | currency | annual | FSB Global Monitoring Report | OFFICIAL |
| Open-ended fund liquidity mismatch | share of assets in less liquid holdings | quarterly | Fund regulatory reporting | ESTIMATED |
| Hedge fund leverage | gross notional exposure over net asset value | quarterly | Form PF statistics | OFFICIAL |
| Money market fund flows | currency per week | weekly | Fund industry and regulator data | REPORTED |
| Bank credit lines to nonbanks | currency | quarterly | Supervisory data | OFFICIAL |
The topic as a computational graph: named sources feed the methods, an evidence review gates the outputs, and the decisions stay with the authorities that hold them.
Fig. 02Nodes carry their type, two metric rows and a state; connectors show what feeds what; dashed frames name the owners; the timeline is the cadence. Design of the pipeline, not a record of a run.
Named public datasets and institutional records, each with its licence class. Sources by agreement are used only under their terms and never republished.
| Source | What it gives | Licence class |
|---|---|---|
| FSB Global Monitoring Report on Nonbank Financial Intermediation | Size, composition and risks of nonbank intermediation by jurisdiction | Free, FSB terms |
| SEC Form PF statistics | Aggregated private fund leverage and liquidity data | Public domain |
| ESMA risk dashboards and fund statistics | EU fund flows, liquidity and leverage indicators | Free, EU reuse terms |
| Office of Financial Research hedge fund monitor | Hedge fund leverage and repo data | Public domain |
| IOSCO investment funds statistics report | Global fund industry data | Free, IOSCO terms |
Financial Stability prepares evidence. The decisions below are taken by the authorities named, under their own rules, and never by the platform.
| Who decides | The question | Evidence this page serves |
|---|---|---|
| Securities and fund regulators | Which liquidity management tools funds must have and use | Fund liquidity data and stress episodes |
| Macroprudential authorities and the FSB | Whether nonbank leverage or mismatch needs policy action | System-wide monitoring and policy recommendations |
| Fund boards and managers | How to match redemption terms to asset liquidity | Liquidity profiles and comparable fund practice |
| Bank risk committees | How much exposure to nonbank counterparties to accept | Counterparty data and margin practice |
Borrowing through repo, derivatives and fund structures, and how visible it is.
Funds offering frequent redemptions while holding less liquid assets.
Credit lines, prime brokerage, repo and origination links.
How simultaneous demand for liquidity across nonbanks affects markets.
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.
| Method or data | What it shows | Its limit |
|---|---|---|
| Fund-level data | Assets, liquidity and redemptions | Reporting varies by jurisdiction |
| Repo and derivatives data | Leverage and margin | Fragmented across trade repositories |
| Bank-nonbank exposure data | Interconnections | Limited public detail |
| Stress simulation | Behaviour under redemption and margin shocks | Assumption-dependent |
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