The sector’s rapid growth alarms regulators over weak transparency and risks spilling into broader financial markets
[LONDON] The non-bank financial sector’s share of global assets grew to 51 per cent, or US$256.8 trillion, last year and expanded at double the rate of the traditional banking industry, the Financial Stability Board (FSB) said on Tuesday (Dec 16).
Non-bank financial intermediaries involved in what is commonly referred to as the “shadow banking” sector include money market funds, hedge funds, private credit providers, pension funds and insurers among others. The sector’s rapid expansion is a growing priority for regulators, who worry about its lack of transparency and the risk problems there could endanger broader financial markets.
The FSB, which coordinates financial rules for the Group of 20 economies, reported in its annual review of the sector that the share of global assets was the second-largest on record and similar to pre-pandemic levels.
Regulators seek more knowledge, lending standards questioned
The sector’s growth of 9.4 per cent year on year – compared with the banking industry’s 4.7 per cent – was helped by “buoyant risk appetite” thanks to rising asset prices and lower interest rates, the report based on the latest available data to the end of 2024 found.
The financial assets of a narrower definition of non-banks, grouping those whose activities may pose “bank-like financial stability risks”, grew by 12.7 per cent to US$76.3 trillion, with even faster growth in emerging markets, the FSB found.
Regulators want to improve their knowledge of shadow banking. The Bank of England announced this month it was launching a stress test of how the global private equity and private credit industries would deal with a major financial shock.
The bankruptcy of two US businesses – subprime lender Tricolor and auto parts maker First Brands – has also rattled credit investors this year, placing focus on the quality of lending standards in the non-bank sector.
The FSB launched a monitoring framework to track non-bank financial intermediaries in 2010 but said on Tuesday it remained concerned over “severe limitations in the availability of data for private credit in statistical and regulatory reports”.
“The assessment of private assets’ potential impact on financial stability will be an important part of the overall FSB’s surveillance work in the year ahead,” it said. REUTERS
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