Basel: Shadow Banking Sector Outpaces Banks in 2019

Bank-like activity by nonbanks that poses financial stability risks grew by 11.1% to total $57.1 trillion in 2019, according to the Basel, Switzerland-based Financial Stability Board today—a return to the decade-long trend line of growth after a slower rate of increase in 2018. The measure now accounts for 14.1% of global financial assets and comprises collective investment vehicles, nonbank lenders dependent on short-term funding and market intermediaries depending on short-term or secured funding.

The nonbank activity posing financial stability risks accounts for 28.5% of all nonbank financial intermediation, or NBFI, the FSB’s preferred term for “shadow banking.” In 2019, NBFI accounted for 49.5% of the $404.1 trillion in total global financial assets. Depository institutions’ share of financial assets rose by 5.1% in 2019 to account for 38.4% of the market.

While the report principally covered the NBFI market through the end of 2019, it included analysis of the early post-COVID-19 environment. In the first quarter of 2020, for example, NBFI shrunk by 4% even as global financial assets surged, with bank assets up 8% as corporate borrowers tapped credit lines amid the market turmoil.