Enhancing the Resilience of Non-Bank Financial Intermediation: Progress report

The present „Enhancing the Resilience of Non-Bank Financial Intermediation (2023 Progress Report)“ outlines the efforts made by the FSB and other international organizations to improve the resilience of NBFI. NBFI has become increasingly vital, representing nearly half of global financial assets, necessitating a focus on its stability to support the real economy.
The FSB initiated a comprehensive NBFI work program following the lessons learned from the March 2020 market turmoil. This program aims to examine and address issues that exacerbated shocks, enhance systemic risk understanding, and evaluate policies to mitigate NBFI’s systemic risk. Recent events, including the Archegos failure and disruptions in commodities and bond markets, highlight the urgency of policy measures to bolster NBFI resilience while not compromising its role in financing the real economy.
The report emphasizes the critical role of liquidity in the NBFI ecosystem and highlights the risks associated with liquidity imbalances, which can lead to financial instability. Certain activities and entities known as „key amplifiers“ contribute to liquidity imbalances and shock transmission due to their size, characteristics, and behavior during stress.
The FSB’s policy focus is on reducing excessive spikes in liquidity demand by addressing underlying vulnerabilities. It primarily repurposes existing policy tools, leveraging micro-prudential and investor protection measures.
To address liquidity stress, the FSB and SSBs are developing comprehensive policies. The first set focuses on revising FSB Recommendations to address structural liquidity mismatches in OEFs, promoting clarity on redemption terms and liquidity management tools. The second set concentrates on margining practices and enhancing liquidity risk management and governance.
The report underscores the need for cohesive and complementary policies and acknowledges that vulnerabilities persist until these policies are fully implemented.
Experience with systemic risk mitigation tools in NBFI is limited, and further discussions and assessments are planned. The report outlines the future work on systemic risk in NBFI, with a key focus in 2024 on addressing financial stability risks arising from NBFI leverage.