Policy recommendations to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls in centrally and non-centrally cleared derivatives and securities markets during times of market stress.
Non-Bank Financial Intermediation
The non-bank financial intermediation (NBFI) ecosystem comprises a diverse set of financial activities, entities and infrastructures. Non-bank financial institutions – comprising investment funds, insurance companies, pension funds and other financial intermediaries – have different business models, balance sheets and governance structures, and are subject to distinct regulatory frameworks within and across jurisdictions. These institutions play an increasingly important role in financing the real economy and in managing the savings of households and corporates. They are a valuable alternative to bank financing and help to support real economic activity.
Nevertheless, non-bank financing may become a source of systemic risk if it involves maturity/liquidity transformation or leads to the build-up of leverage. The diversity and growing involvement of non-bank entities in credit provision has led to more interconnections, including on a cross-border basis, meaning that stress in the sector can be transmitted more widely to other parts of the financial system and to the broader economy.
The FSB has undertaken significant work to assess and address the risks from NBFI (formerly referred to as shadow banking) following the 2008 global financial crisis. The FSB created a system-wide monitoring framework to track developments in NBFI in response to a G20 Leaders’ request at the Seoul Summit in 2010. The objective of the monitoring exercise is to identify the build-up of systemic risks in NBFI and initiate corrective actions where necessary. Complementing this monitoring, the FSB has been coordinating and contributing to the development of policies to mitigate potential systemic risks associated with NBFI.
Monitoring
To assess global trends and risks in NBFI, the FSB has been conducting an annual monitoring exercise since 2011. The monitoring exercise starts by casting the net wide to take a view of assets across all financial sectors and then focuses on the subset of NBFI with increased potential for systemic risks and/or regulatory arbitrage. To arrive at the narrow measure, non-bank financial entities are classified into five economic functions (or activities), each of which involves bank-like financial stability risks (i.e. credit intermediation that involves maturity/liquidity transformation, leverage or imperfect credit risk transfer).
Policy work
In 2013, the FSB, working with standard-setting bodies (SSBs), developed policy recommendations to strengthen the oversight and regulation of non-bank financial intermediation. The policies, which were endorsed by the G20, focused on five areas and aimed to:
- mitigate spill-overs between banks and the NBFI sector;
- reduce the susceptibility of money market funds (MMFs) to “runs”;
- improve transparency and align incentives associated with securitisation;
- dampen procyclicality and financial stability risks associated with securities financing transactions such as repos and securities lending; and
- assess and mitigate systemic risks posed by other non-bank financial entities and activities.
The COVID-19 pandemic placed the global financial system under considerable strain. Key funding markets experienced acute stress in March 2020 and public authorities needed to take a wide range of measures to restore market functioning and support the supply of credit to the real economy. The March turmoil underscored the need to further strengthen resilience in the NBFI sector.
The FSB’s Holistic Review of the March Market Turmoil sets out an NBFI work programme organised along three main areas:
- Analytical and policy work to examine and, where appropriate, address specific issues that contributed to the market turmoil. This includes work on money market funds, open-ended funds, margining practices, USD funding and vulnerabilities in emerging market economies, and the liquidity, structure and resilience of bond markets.
- Developing a systemic risk perspective in NBFI to enhance understanding of systemic risks in NBFI and strengthen their ongoing monitoring.
- Developing policies to address systemic risks in NBFI, including by assessing the adequacy of current policy tools given the desired level of resilience for the sector.
This work is carried out within the FSB as well as by its member SSBs and international organisations, to ensure that relevant experiences and perspectives are brought to bear. Progress under the FSB’s NBFI work programme, including an overview of future work, is detailed in its annual progress report.
Key Documents
10 December 2024
Report sets out progress over the past year and planned work under the FSB’s work programme to enhance the resilience of non-bank financial intermediation (NBFI).
Report sets out progress over the past year and planned work under the FSB’s work programme to enhance the resilience of non-bank financial intermediation (NBFI).
6 September 2023
Report provides an overview of aggregate NBFI leverage trends across FSB jurisdictions and the vulnerabilities associated with that leverage.
20 February 2023
Report provides an overview of commodities markets, focusing on the mechanisms through which stresses in these markets could propagate through the financial system, and discusses policy implications.
Report assesses vulnerabilities and sets out policies to address systemic risk in NBFI. It also provides an overview of the FSB’s NBFI work programme for 2023 and beyond.
20 October 2022
This report, which forms part of the FSB’s work programme to enhance the resilience of non-bank financial intermediation (NBFI), analyses the liquidity, structure, and resilience of core government bond markets.
This report, which forms part of the FSB’s work programme on non-bank financial intermediation, presents the findings of FSB work with IMF staff on the interaction between US dollar (USD) funding and external vulnerabilities in emerging market economies (EMEs).
This report describes progress over the past year and planned work by the FSB, as well as by standard-setting bodies and other international organisations, to enhance the resilience of non-bank financial intermediation.
17 November 2020
Analysis of market reaction to COVID-19 and the FSB’s work programme to address non-bank financial intermediation risks.
19 December 2019
FSB assessment of risks in the leveraged loan and CLO markets.
Annual monitoring exercise to assess global trends and risks in non-bank financial intermediation.
Assessment shows shadow banking risks have declined significantly.
29 August 2013
This document sets out the final policy framework to address shadow banking risks posed by non-bank financial entities other than money market funds (MMFs) (“other shadow banking entities”).
In response to its November 2012 consultative document ‘A Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos’, the FSB received consultation responses from more than 50 respondents.
This document defines shadow banking and sets out measures to enhance oversight of less regulated sectors.
11 April 2011
This paper sets out the current thinking of the task force especially on what is meant by the “shadow banking sytem”. The FSB invites feedback on this note sent to [email protected] by 16 May 2011.
16 December 2024
Report assesses global trends and vulnerabilities in the non-bank financial intermediation (NBFI) sector during 2023.
18 December 2023
Report assesses global trends and vulnerabilities in the non-bank financial intermediation (NBFI) sector for 2022.
20 December 2022
Report assesses global trends in the non-bank financial intermediation (NBFI) sector for the year ending 31 December 2021.
16 December 2021
Report reviews global trends and risks in the non-bank financial intermediation (NBFI) sector for 2020, the first year of the COVID-19 pandemic.
16 December 2020
Report provides new information on global trends and risks in non-bank financial intermediation.
Annual monitoring exercise to assess global trends and risks in non-bank financial intermediation.
Annual monitoring exercise to assess global trends and risks in non-bank financial intermediation.
5 March 2018
Seventh monitoring exercise to assess global trends and risks in the shadow banking system, accompanied by a comprehensive dataset.
10 May 2017
Sixth monitoring exercise to assess global trends and risks in the shadow banking system, accompanied by a comprehensive dataset.
12 November 2015
Fifth annual monitoring exercise to assess global trends and risks of the shadow banking system, accompanied by a comprehensive dataset.
4 November 2014
The annual shadow banking monitoring exercise is accompanied by a comprehensive data set at national and aggregate level as well as the data underlying most of the exhibits shown in the report.
14 November 2013
This report presents the results of the third annual global shadow banking monitoring exercise and offers a systematic account of the size, composition and trends of non-bank financial intermediation across major global financial systems.
18 November 2012
This report presents the results of the second annual global shadow banking monitoring exercise and offers a systematic account of the size, composition and trends of non-bank financial intermediation across major global financial systems.
20 December 2023
FSB revised recommendations set out the key objectives that an effective regulatory and supervisory framework should achieve to address the vulnerabilities arising from liquidity mismatch in OEFs.
Consultation report sets out proposed changes to the FSB’s 2017 Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities in relation to liquidity mismatch in open-ended funds.
14 December 2022
Report presents findings on the effectiveness of the FSB Recommendations to address liquidity mismatch in OEFs and proposes follow-up policy work based on those findings.
This report presents a framework and policy toolkit for addressing vulnerabilities in money market funds.
12 January 2017
Recommendations focus on open-ended fund liquidity mismatch, investment fund leverage, operational risk and securities lending.
12 April 2021
A collection of Frequently Asked Questions (FAQs) about Securities financing transactions (SFTs).
7 September 2020
Policy recommendations in the framework for haircuts on certain non-centrally cleared securities financing transactions. This report was originally published on 12 November 2015 but the annexes were updated on 19 July 2019, 25 November 2019 and 7 September 2020.
Guidelines for authorities in reporting securities financing data.
25 January 2017
FSB sets out measure to quantify non-cash collateral re-use.
25 January 2017
FSB finalises policy work on re-hypothecation and collateral re-use.
18 November 2015
FSB standards and processes to allow the FSB to periodically collect aggregated data on securities financing transactions.
