Global Monitoring Report on Non-Bank Financial Intermediation 2019

19 January 2020 | PDF full text (928 KB)

The Global Monitoring Report on Non-Bank Financial Intermediation 2019 presents the results of the FSB’s annual monitoring exercise to assess global trends and risks from non-bank financial intermediation (NBFI).

FSB NBFI Report 2019 - Exhibit 0-1

The annual monitoring exercise is part of the FSB’s strategy to enhance the resilience of NBFI. The exercise compares the size and trends of financial sectors in aggregate and across jurisdictions. The FSB focuses particularly on those parts of NBFI that may pose bank-like financial stability risks and/or regulatory arbitrage.

Section 1 introduces the FSB’s monitoring approach, including the scope, data, and terminology. It also describes recent innovations in NBFI. The 2019 report covers data up to end-2018 from 29 jurisdictions, which together represent over 80% of global GDP.

Section 2 provides an overview of the size and growth of all sectors in the financial system. Total global financial assets grew by 1.4% in 2018, driven largely by banks. Within MUNFI (Monitoring Universe of Non-Bank Financial Intermediation) assets of insurance corporations and pension funds remained largely unchanged, while those of OFIs (Other Financial Intermediaries) declined marginally as a result of stock market declines in late 2018 and, to a lesser extent, outflows from some of these entities.

NBFI as a share of total financial assets

In 2018, lending assets of OFIs, which comprise all financial institutions that are not central banks, banks, insurance corporations, pension funds, public financial institutions or financial auxiliaries grew by 3.0%, largely driven by the euro area. In comparison, bank loans grew by 5.9%. Repo assets and liabilities of OFIs increased in 2018, with the net repo position remaining largely unchanged. Growth in repo assets of banks exceeded that of repo liabilities.

Section 3 assesses the interconnectedness among financial entities, both within and across borders. Interconnectedness between banks and OFIs through credit and funding relationships has remained largely unchanged since 2016, after declining from its 2009 levels. Investment funds and money market funds remain the largest OFI sub-sectors that provide credit to banks.

Section 4 focuses on those parts of NBFI where bank-like financial stability risks may arise. This narrow measure of NBFI grew by 1.7%, to $50.9 trillion in 2018, compared to an average annual growth rate of 8.5% from 2012 to17. It now represents 13.6% of total global financial assets. The narrow measure, which reflects an activity-based “economic function” (EF) assessment of risks, includes the following elements:

Narrowing down from MUNFI: 29 jurisdictions at end-2018, in USD trillion

The narrow measure, which reflects an activity-based “economic function” (EF) assessment of risks, includes the following elements:

  • Collective investment vehicles (CIVs) with features that make them susceptible to runs (EF1) grew by 0.4% in 2018, much less than the 11.0% average annual growth rate from 2012 to 2017. CIVs represent 72.0% of the narrow measure. Two of the largest EF1 entity types, money market funds and fixed income funds, invest primarily in credit assets and engage in liquidity and maturity transformation.
  • Non-bank financial entities engaging in loan provision that is dependent on short-term funding (EF2) grew by 6.9% in 2018, representing 7.0% of the narrow measure. Finance companies, the entity type most commonly classified into EF2, displayed a somewhat elevated degree of leverage, but have moderate maturity transformation in most jurisdictions.
  • Market intermediaries that depend on short-term funding or secured funding of client assets (EF3) grew by 8.7% in 2018, representing 8.8% of the narrow measure. Broker-dealers that are not prudentially consolidated into banking groups constitute the largest EF3 entity type; they employ significant leverage, particularly when accounting for off-balance sheet exposures. Broker-dealer leverage increased modestly in 2018 in most jurisdictions. In aggregate, it remains lower than the levels seen in the lead up to the financial crisis.Evolution of the narrow measure by economic function
  • Entities involved in the facilitation of credit creation (EF4) grew by 5.0% in 2018. The size of these entities, which represent less than 1% of the narrow measure, may be significantly understated due to the difficulty in capturing off-balance sheet exposures. Assets of investment funds involved in credit derivatives have increased in recent years, and accounted for the biggest share of EF4 assets in 2018.
  • The nominal value of entities engaged in securitisation-based credit intermediation (EF5), such as securitisation vehicles, remained largely unchanged in 2018, representing 9.3% of the narrow measure. Assets of structured finance vehicles, which include collateralised loan obligations, grew by 9.7%, continuing the growth seen in 2017. However, this growth was offset by a decrease in the assets of Chinese trust companies, which fell by 21.7%.

Section 5 features case studies that discuss different aspects of NBFI in greater detail, including: (i) flow and valuation effects in the investment fund sector; (ii) the role of non-bank financial institutions in providing financing to commercial real estate; and (iii) the role of investment funds in cross-border capital flows.

Datasets from the report are publicly available for use in accordance with to the FSB’s normal terms and conditions.

FSB publishes annual report on non-bank financial intermediation

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Ref no: 1/2020

The Financial Stability Board (FSB) today published the Global Monitoring Report on Non-Bank Financial Intermediation 2019. The report presents the results of the FSB’s annual monitoring exercise to assess global trends and risks from non-bank financial intermediation (NBFI).

The annual monitoring exercise is an important part of the FSB’s policy framework to enhance the resilience of NBFI. It covers data up to end-2018 from 29 jurisdictions, which together represent over 80% of global GDP. The FSB focuses particularly on those parts of NBFI that may pose bank-like financial stability risks and/or regulatory arbitrage (i.e. the narrow measure of NBFI).

Main findings from the 2019 monitoring exercise include:

  • Total global financial assets grew by 1.4% to $378.9 trillion in 2018, driven largely by banks. Assets of insurance corporations and pension funds remained largely unchanged, while those of Other Financial Intermediaries (OFIs)1 declined marginally as a result of stock market declines in late 2018 and, to a lesser extent, outflows from some of these entities.

  • The narrow measure of NBFI grew by 1.7%, to $50.9 trillion in 2018, significantly slower than the 2012-17 average annual growth rate of 8.5%. It now represents 13.6% of total global financial assets. Collective investment vehicles with features that make them susceptible to runs grew by 0.4% in 2018, much slower than the 11% average annual growth rate from 2012-17. At the end of 2018, such collective investment vehicles represented 72% of the narrow measure.

  • Lending by OFIs has continued to grow. OFI lending assets grew by 3.0% in 2018, largely driven by the euro area.

  • Interconnectedness between banks and OFIs through credit and funding relationships has been largely unchanged since 2016. Investment funds and money market funds remain the largest OFI providers of credit to banks.

Klaas Knot, Chair of the FSB Standing Committee on Assessment of Vulnerabilities, said: “Non-banks play an increasingly important role in the global financial system. The FSB’s monitoring report provides a significant resource for authorities to assess trends and risks from NBFI. Such information is essential for a forward-looking, system-wide oversight framework.”

Notes to editors

In response to a G20 Leaders’ request at the Seoul Summit in 2010, the FSB adopted a two-pronged strategy to address financial stability risks in NBFI (previously called shadow banking). First, it created a system-wide monitoring framework to track developments in NBFI with a view to identifying the build-up of systemic risks and initiating corrective actions where necessary. Second, it has been coordinating and contributing to the development of policies to mitigate potential systemic risks associated with NBFI.

The FSB will continue to monitor and assess developments to ensure that non-bank financing is resilient. As noted in its work programme for 2020, the FSB will further strengthen its annual NBFI monitoring exercise and data framework to assess the evolution of risks from NBFI developments globally. It will also review the organisation of its work on NBFI this year.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor and Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Press release available as: PDF
  1. OFIs includes all financial institutions that are not central banks, banks, insurance corporations, pension funds, public financial institutions or financial auxiliaries. [←]

2019 Underlying data for exhibits

16 January 2020

2019 Monitoring Dataset

2019 Reporting templates

Clock Synchronisation

View the Standard

Accurate and precise time stamps can help regulators reconstruct past events, which may occur on different markets or in different jurisdictions. Regulatory authorities can better use time stamps from synchronised clocks to more effectively monitor and identify instances of potential market abuse and analyse market events for regulatory purposes. Therefore, IOSCO believes that member jurisdictions would likely benefit from establishing a common expectation with respect to timestamping and clock synchronisation for the purposes of recording trade and related events.

Given the heterogeneity of the markets across member jurisdictions, each market authority is best placed to determine an acceptable level of accuracy and granularity of the timestamp in their jurisdiction. However, IOSCO recommends that member jurisdictions use UTC as the standard reference time source to the extent that they have adopted or are considering adopting requirements on clock synchronisation. In jurisdictions with clock synchronisation requirements for trading venues and their participants, setting out a reference time is important in clarifying the timestamping requirement on reportable events. This may be achieved in various ways as jurisdictions have different regulatory frameworks and approaches, and not all regulators require time stamping by registered entities and so do not necessarily require a regulatory change.

Financial Soundness Indicators Compilation Guide (2019 FSIs Guide)

27 December 2019

View the Standard

The purpose of this Manual is to facilitate the compilation and cross-country comparability of FSIs to assist users in their macroprudential financial surveillance of the financial system. It incorporates changes in international regulatory standards embodied in the Basel III reform – including new definitions and measures of capital and new global liquidity standards,  as well as revisions to the International Financial Reporting Standards, while providing practical advice on compilation issues, which are relevant for macroprudential policy and financial stability analysis.

Solvent Wind-down of Derivatives and Trading Portfolios: Overview of responses to the consultation

20 December 2019 | PDF full text (146 KB)

On 3 June 2019, the FSB published a consultative document on Solvent Wind-down of Derivatives and Trading Portfolios. The note summarises the responses to the public consultation and provides an overview of the responses to those comments.

After carefully considering these comments and the fact that many capabilities necessary to support the preparation and execution of solvent wind-down are not specific to solvent wind-down planning, the FSB has decided not to develop further guidance at this stage. Since solvent wind-down planning is an integral part of resolution planning, it needs to be consistent with a firm’s resolution strategy and plan. The FSB will therefore continue to promote solvent wind-down planning as part of overall resolution planning.

Public Disclosures on Resolution Planning and Resolvability: Overview of responses to the consultation

| PDF full text (149 KB)

On 3 June 2019, the FSB published a consultative document on Public Disclosure of Resolution Planning and Resolvability. The note summarises the main points from the responses to this public consultation.

The FSB does not plan to develop further guidance on resolution disclosures at this stage. However, it will continue to encourage appropriate levels of disclosure by authorities of their general resolution policies and by firms, as applicable, of firm-specific disclosures. It will also consider how to collect and share references to authorities’ disclosures of general resolution-related policies, including policy proposals, in particular rules with possible cross-border effects. In 2022, the FSB will revisit the question of whether further guidance is needed.

Vulnerabilities associated with leveraged loans and collateralised loan obligations

19 December 2019 | PDF full text (2 MB)

This report assesses the financial stability implications of developments in the leveraged loan and CLO markets. It provides a global perspective by combining available data and analyses from FSB members.

Markets for leveraged loans and CLOs have grown significantly in recent years, with the majority of issuance concentrated in the US and to a lesser extent the European Union. The securitisation of leveraged loans through CLO issuance, which had come to a halt almost entirely between 2009 and 2010, exceeded pre-crisis levels in 2014 and has remained strong since then. While most leveraged loans are originated and held by banks, and banks have the largest exposure to the market, the role of non-bank financial institutions has increased.

The report concludes that:

  • Vulnerabilities in the leveraged loan and CLO markets have grown since the global financial crisis. Borrowers’ leverage has increased; changes in loan documentation have weakened creditor protection; and shifts in the composition of creditors of non-banks may have increased the complexity of these markets.
  • Banks have the largest direct exposures to leveraged loans and CLOs. These exposures are concentrated among a limited number of large global banks and have a significant cross-border dimension.
  • A number of non-bank investors, including investment funds and insurance companies, are also exposed to the leveraged loan and CLO markets.
  • Given data gaps, a comprehensive assessment of the system-wide implications of the exposures of financial institutions to leveraged loans and CLOs is challenging.

Using supervisory and market data, the report identifies the direct holders of roughly 79% of leveraged loans and 86% of CLOs. Little is known, however, about the direct exposures of certain non-bank investors to these markets. Including their holdings of lower-rated CLO tranches. The FSB will consider whether there is scope to close data gaps, will continue to analyse the financial stability risks and will discuss the regulatory and supervisory implications associated with leveraged loans and CLOs.