- Reflects the findings of an analysis conducted as part of the Committee’s forward-looking work to identify and analyze risks and vulnerabilities to the banking system.
- Identifies the services banks and non-bank financial intermediaries (NBFIs) provide to each other and the trends shaping the relationship between them.
- Basel Committee will continue to monitor and investigate the interconnections between banks and NBFIs with a particular focus on synthetic risk transfers.
The Basel Committee on Banking Supervision (BCBS) published a horizon-scanning report on the interconnections between banks and non-bank financial intermediaries (NBFIs). The NBFI sector has grown rapidly in recent years and includes a broad range of entities including investment funds, insurance companies, pension funds and other types of financial intermediaries.
Banks and NBFIs are linked by a wide range of activities and services and the sectors are mutually dependent. Banks provide leverage, clearing, market-making and underwriting services to NBFIs, trade derivatives with NBFIs and, in some cases, own NBFIs. These activities expose banks to a wide variety of risks. NBFIs are also exposed to banks through short-term cash placements, investment in securities issued by banks and trading activities. The nature of their linkages is shaped by market conditions and by regulatory reforms over the last several years.
To explore the risks associated with banks’ interconnections with NBFIs, the report builds on several case studies to discuss stylized scenarios that illustrate possible impacts of NBFI failure on banks and financial stability. The report also discusses the importance of granular, timely and high-frequency data in understanding and monitoring linkages between banks and NBFIs.
“The Committee will continue to monitor and investigate the interconnections between banks and NBFIs with a particular focus on synthetic risk transfers (SRTs). The investigation will seek to better assess the benefits and risks posed by SRTs,” BCBS wrote in a statement.