Global Monitoring Report on Non-Bank Financial ...

1 Global Monitoring Report on Non-Bank Financial intermediation 2021 16 December 2021 The Financial Stability Board (FSB) coordinates at the international level the work of national Financial authorities and international standard-setting bodies in order to develop and promote the implementation of effective regulatory, supervisory and other Financial sector policies. Its mandate is set out in the FSB Charter, which governs the policymaking and related activities of the FSB. These activities, including any decisions reached in their context, shall not be binding or give rise to any legal rights or obligations.

2 Contact the Financial Stability Board Sign up for e-mail alerts: Follow the FSB on Twitter: @FinStbBoard E-mail the FSB at: Copyright 2021 Financial Stability Board. Please refer to the terms and conditions iii Table of Contents Executive summary .. 1 Introduction .. 4 1. Financial intermediation in the Global Financial system .. 6 Global Financial system assets exhibited strong growth, mainly driven by banks and central banks balance sheets .. 7 Investment funds contributed the most to growth in NBFI sector assets in 2020.

3 9 Credit intermediation by the NBFI sector increased more slowly than credit intermediation by the banking sector .. 14 2. Direct Interconnectedness among Financial sectors .. 17 While large data gaps remain, OFIs have the largest cross border linkages across sectors .. 17 Interconnectedness between banks and the NBFI sector decreased slightly in 2020 .. 19 OFIs, PFs and ICs invest in, and provide funding to, one another.. 23 Other investment funds are responsible for a meaningful share of reported OFI cross-border linkages.

4 24 3. The narrow measure of NBFI .. 25 Narrowing down towards an activity- based measure of NBFI .. 26 Narrow measure trends .. 30 Collective investment vehicles with features that make them susceptible to runs (EF1) .. 35 Loan provision that is typically dependent on short-term funding (EF2) .. 46 intermediation of market activities dependent on short-term funding (EF3) .. 49 Insurance or guarantees of Financial product (EF4) .. 52 Securitisation- based credit intermediation (EF5) .. 54 Annex 1: Jurisdiction-specific Financial sectors.

5 57 Annex 2: Summary table .. 59 Annex 3: Exclusion of NBFI entity types from the narrow measure of NBFI .. 60 Annex 4: Risk metrics .. 64 Abbreviations .. 70 Bibliography .. 71 iv 1 Executive summary This Report discusses Global trends in the Non-Bank Financial intermediation (NBFI) sector for the year ending 31 December 2020, the first year of the COVID-19 pandemic. It presents the results of the 11th annual FSB Monitoring exercise to assess trends and vulnerabilities in NBFI, covering 29 jurisdictions that account for approximately 80% of Global GDP.

6 The Report covers NBFI developments in a period that includes both the COVID-19 shock and the extraordinary steps taken by official sector authorities to stabilise Financial markets and support financing to the real economy. The Report begins with a broad assessment of trends in Financial intermediation before narrowing its focus to the subset of NBFI activities that may be more likely to give rise to vulnerabilities. Section 1 describes trends across Financial sectors and jurisdictions, drawing on sectoral balance sheet data.

7 This section places developments in NBFI in the broader context of aggregate developments in Financial intermediation . Section 2 uses more detailed balance sheet information to highlight interconnectedness among Financial sectors. The Report develops a narrow measure of NBFI in Section 3, focusing on those activities that may engender vulnerabilities through liquidity/maturity transformation or leverage. Non-Bank Financial entities are included in this narrow measure if they perform one of the five economic functions set out in the FSB Monitoring approach (Graph 0-1, RHS).

8 Classification into an economic function is performed on a conservative (or inclusive) basis, assuming that policy mitigants or risk management tools are not applied ( on a pre-mitigant basis). In contrast to the trend over the past decade, the NBFI sector grew less than the banking sector in 2020. While the Financial assets of the NBFI sector which includes all Financial institutions that are not central banks, banks or public Financial institutions (see Box 0-1) rose in absolute terms, the sector s share of total Financial assets declined from in 2019 to in 2020.

9 This decline reflects in part the COVID-19 shock and the significant monetary and fiscal policy responses to the shock, including a greater role played by the banking sector and public Financial institutions in supplying credit to the real economy, and the expansion in central bank balance sheets to support credit and funding markets over this period. While the share of Global NBFI sector assets held by emerging market economies (EMEs) has increased over time, it remains small relative to total NBFI Financial assets, amounting to around Nevertheless, the relative importance of NBFI has increased at a faster pace in EMEs than in advanced economies (AEs) between 2013 and 2020.

10 Banks balance sheet linkages with the NBFI sector decreased in 2020. Banks continue to be net recipients of funding from NBFI entities, in aggregate and in most jurisdictions. As a percentage of bank assets, however, banks liabilities to the NBFI sector were lower in 2020 than in prior years. The assets of Non-Bank Financial entities classified into the five economic functions set out in the FSB Monitoring approach grew more slowly in 2020 than in 2019. Globally, except for securitisation- based credit intermediation , all economic functions experienced growth in assets.