Non-bank financial intermediation (NBFI) has been in the news. This form of financial intermediation has grown fast since the global financial crisis (GFC), and its size now equals that of banks in many countries (Acharya et al. 2024 ). Presumably, this growth reflects the demand for, and economic benefits of, the specific services offered by non-bank financial intermediaries (NBFIs). Yet, NBFI has also been in the news as a factor behind some recent financial stresses (e.g. FSB 2020). These events, including severe dysfunctioning in core bond markets, have necessitated large central bank interventions. Related, some have questioned the spare wheel role of NBFI, the notion that it will help with financing the real sector in times of stress. Rather, some recent analysis (e.g. Forbes et al. 2023, Aldasoro et al. 2024) suggests that NBFI is less willing than banks to tie borrowers over during crises and may actually be more procyclical. 

Reflecting this, in a recent paper (Claessens 2024) I review research and policy work on NBFI from a financial stability perspective. Reflecting its growth, stability, and procyclicality issues, NBFI has been researched more recently (for another review, see Aramonte et al. 2023) and received much more policy attention (e.g. FSB 2024). In some sense, this reflects a catching up with the attention long given to banking. But there are many differences. For one, NBFI is more diverse than banking, including as it does money market and other asset management vehicles, pension funds and insurance corporations, making for many aspects to cover and issues to consider. I therefore focus on market-based forms, and within that subset, on debt-related intermediation, as that is most closely associated with financial instability. And, as NBFI emerged more recently, it has led to crises only lately. Since NBFI-related financial instability is very episodic, there are few such events – less so than related to banking. Together, this has made it harder to study its financial stability properties than for banking.

With these caveats in mind, I first document the rapid growth of NBFI. While it has slowed down recently, since the GFC its growth has exceeded that of other financial assets (Figure 1a; for more details, see FSB 2023b). NBFI assets now account for nearly one-half of total global financial assets (Figure 1b).  In 2022, approximately 65% was held by so-called other financial intermediaries (OFIs) – institutions other than central banks, banks, public financial institutions, insurance corporations, pension funds, or financial auxiliaries. Among OFIs, about three-quarters are collective investment vehicles (CIVs), such as money market funds (MMFs), fixed-income funds, balanced funds, hedge funds, and real estate investment trusts. Relative to GDP, between 2012 and 2022 they grew by 7 percentage points in the UK, 3 percentage points in Italy, 2 percentage points in Japan, 1 percentage point in the US, roughly doubled in Brazil and South Africa, and increased by one-third in India. While attribution is difficult, the low interest rate environment, generally low asset price volatility, as well as technological advances and financial reforms likely drove this growth.