The New Structural Instability of the Financial System

A new paper from the SUERF, the European Money and Finance Forum, explains that the rising systemic importance of Non-bank financial institutions (NBFIs), is sharply increasing the need for central banks to intervene to stabilise financial systems as banks become less able to provide liquidity ¹.

Changing structure in bank lending

NBFIs, such as asset managers, insurers, hedge funds or trading firms, now hold 47% of total global financial assets. Fixed income funds are the largest entity type, followed by money market funds. In reality NBFIs are lending to the same type of customers as banks lend to, middle market companies, commercial real estate (CRE), or to fund buy outs with ‘leveraged loans’. However, NBFIs tend to lock in their investors through commitments and strict withdrawal limits so that, in the event of a crisis capital flight can be limited.