Navigating Interconnectedness: Analyzing Banks' Exposures and Funding from Non-Bank Financial Institutions
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Once again, the interconnectedness between the traditional banking industry and the NBFI sector greatly varies between countries. Data from the FSB allows us to investigate banks’ exposures and use of funding from different NBFIs in 2021 at a national level (for the 29 countries selected), showing significant differences.
Important variations in banks' use of funding from NBFIs as percentage of total bank assets in 2021
In Europe, Luxemburg is the front-runner with nearly 25% of its total bank assets funded by NBFIs
Important variation in banks' exposure to NBFIs as percentage of total bank assets in 2021
In the EU, Belgium is the most exposed to NBFIs, at 9% followed by the UK at nearly 7%
The importance of these three main risk categories also varies depending on the NBFI sub-sector. The following table from the IMF estimates the financial leverage, liquidity and interconnectedness risks for each NBFI sub-sector.
Investment funds are facing high vulnerability to liquidity and interconnectedness risks
As the largest sub-sector, investment funds high risk scores would imply a significant impact on the sector in the event of a major shock
