The Financial Stability Board (FSB) has published the Global Monitoring Report on Non-Bank Financial Intermediation 2023. The report presents the FSB’s annual monitoring exercise assessing global trends and vulnerabilities in non-bank financial intermediation (NBFI). The report mainly covers developments in 2022, when most economies experienced a rising interest rate environment in response to inflationary pressures. It describes broad trends in financial intermediation across 29 jurisdictions that account for around 85% of global GDP, before narrowing its focus to the subset of NBFI activities that may be more likely to give rise to vulnerabilities. This year’s exercise includes data enhancements on interconnectedness, sources of funding, and vulnerability metrics.
The report also includes an overview of policy tools to address vulnerabilities associated with liquidity transformation and use of leverage by collective investment vehicles and a case study of private finance in the euro area, Hong Kong, the United Kingdom, and the United States.
The main findings from this year’s monitoring exercise include:
- The size of the NBFI sector decreased in 2022, which is the first notable decrease since 2009 and can be largely attributed to higher interest rates. The total financial assets of the sector declined 5.5% compared to 2021 to $217.9 trillion, mainly reflecting valuation losses in mark-to-market asset portfolios, particularly in investment funds.
- The narrow measure of the NBFI sector – comprising entities that authorities have assessed as being involved in credit intermediation activities that may pose bank-like financial stability risks – decreased 2.9% to $63.1 trillion in 2022, representing 28.9% of total NBFI assets. This decline can be almost entirely attributed to collective investment vehicles susceptible to runs, such as fixed income, mixed, and credit hedge funds. Money market funds were the only investment fund type to grow in 2022.
- Banks continued to be net recipients of funding from NBFI entities, although this funding has been gradually decreasing as a proportion of bank assets since 2013.
- Most vulnerability metrics of NBFI entities – measuring credit intermediation, maturity transformation, liquidity transformation, and leverage – remained stable. Metrics for maturity transformation in fixed income funds were high overall, while metrics for liquidity transformation were also high across most funds.
Market prices have generally rebounded since the analysis presented in this report, especially following the banking sector turmoil in March 2023. These developments and potential implications for vulnerabilities in the NBFI sector will be assessed in next year’s report.
