Regulators to examine whether assets held in non-banks reflect interest rates
The Financial Stability Board (FSB) said the non-banking finance sector experienced a major retreat last year due to higher interest rates hitting asset valuations.
A Reuters report said non-banks, which are less regulated than banks, grew sharply after the financial crisis as money shifted from the more heavily regulated lenders. The shift raised concerns around “hidden pockets of leverage” and “liquidity mismatches” at money market funds and elsewhere.
The FSB said in 2022 that non-bank financial intermediation (NBFI) had fallen by 5.5% to US$217.9 trillion in 2022, and the fall reflected valuation losses. However, the NBFI still accounts for almost half (47.2%) of global financial assets (a total of US$461.2 trillion).
“Banks continued to be net recipients of funding from the NBFI sector, although this funding has been decreasing since 2013. In contrast, some NBFI entities’ use of funding from banks has increased,” the FSB said in its annual update on the NBFI sector.
“Enhancements in this year’s report reduced unspecified linkages across all non-bank entity types and were most notable in the case of pension funds, where identified linkages increased 25 to 30 percentage points with regard to both claims and liabilities.”
The FBS’s “narrower” measure of NBFI also decreased by 2.9% to US$63.1 trillion in 2022. The watchdog attributed the shrinkage to collective “investment vehicles susceptible to runs”.
According to the report, regulators have begun to look into whether assets held outside the banking sector properly reflect interest rates.
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