18 September 2024

FSB's Schindler: Building bridges: the case for better data and coordination for the non-bank secto

...we face a different financial system. The system has evolved because of our regulatory interventions, innovation, and shifts in global economic and financial conditions. One of the most notable changes has been the increasing importance of the non-bank sector.

I want to speak to you today about a topic of increasing importance to financial authorities on both sides of the Atlantic, and indeed around the world: Non-Bank Financial Intermediation (or NBFI or what I will call the non-bank sector).

The 2008 global financial crisis exposed severe vulnerabilities in the global financial system, and it prompted an awareness that we needed to be more vigilant to financial stability considerations.

The global financial regulatory community embarked on an ambitious reform agenda, scrutinising the entire financial system — banks and non-banks alike — to build resilience. In the banking sector, Basel III was developed to enhance capital requirements and liquidity management and to reduce leverage. A parallel focus was placed on what was then commonly referred to as ‘shadow banking’, but that focus matured into a holistic approach to what we now refer to as non-bank financial intermediation.

Fifteen years later, we face a different financial system. The system has evolved because of our regulatory interventions, innovation, and shifts in global economic and financial conditions. One of the most notable changes has been the increasing importance of the non-bank sector.

Today, I want to make three points as I focus on this critical part of our financial system:

First, the non-bank sector is increasingly critical to the global financial system, and that criticality has been highlighted by the role the sector has played in recent periods of market turmoil.

Second, calling it the non-bank sector may have been appropriate for a while, but the time has come to stop referring to it as if it is monolithic.

And finally, we need more and better data from this critical area.

The non-bank sector is increasingly critical to the global financial system

The non-bank sector has grown in size, complexity, and importance since the GFC, with global assets reaching approximately $220 trillion in 2022. But the core issue, which can’t be encapsulated in any single number, is where risk is building up within the financial system. Over the last decade, again and again, we see parts of the non-bank sector playing a central role in amplifying shocks across the financial system during periods of stress....

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