Macroprudential policies for non-bank financial intermediation (NBFI)

What the EU is doing and why

Non-bank financial intermediation (NBFI) is an integral part of the EU’s financial system. Non-bank financial intermediaries (NBFIs) account for roughly €42.9 trillion assets in 2023, representing 41% of the EU financial sector’s assets, and cover very diverse sectors, including asset management companies and investment funds, non-bank investment firms, family offices, supply chain finance companies, pension funds, insurance companies, and other non-bank entities. Capital markets are also a key component of NBFI and have grown considerably over the past few years.

In the EU, NBFIs play a pivotal role in fostering financial diversity and reducing dependency on bank financing, especially in the context of the capital markets union and the development of a robust single market. Nonetheless, a rapid expansion of NBFI can also generate new challenges and risks to financial stability. The interconnectedness between banks and NBFIs has also steadily expanded and increased the risk of contagion across the financial sector, which can have negative spillover effects on the economy.

At the international level, the Financial Stability Board, the International Organization of Securities Commission, and the International Association of Insurance Supervisors have progressively focused on developing macroprudential analyses and tools that aim to mitigate systemic risks related to NBFIs. This work has gained even more traction in recent years, after various episodes of market turmoil (e.g., the ‘dash for cash’ during the COVID pandemic in March 2020 and the UK gilt market crisis in September 2022) and financial mismanagement (e.g., Archegos or Greensill Capital), which revealed the impact that the build-up of systemic risk and vulnerabilities of NBFIs can have on the whole economy.

The EU currently does not have an overall EU macroprudential framework for NBFI, as it does for banks. In order to tackle certain specific emerging risks in some of the main NBFI sectors, a number of EU directives and regulations applicable to certain NBFIs (e.g. investment funds, insurance companies, central counterparties) already include some macroprudential tools that aim to mitigate the build-up of systemic risk or manage the impact of a systemic event.

European Commission policy on investment funds

European Commission policy on insurance regulation

European Systemic Risk Board (ESRB)

European Insurance and Occupational Pensions Authority

European Securities and Markets Authority (ESMA) on fund management