Differences between regulations for banks and those for nonbank financial intermediaries may have created incentives to shift business activities to the NBFI sector, so bank supervisors should apply “close scrutiny” to such interactions, according to a new report by the Bank for International Settlements’ Basel Committee.
The report on the connections between banks and NBFIs explores the risks of such arrangements and provides scenarios that illustrate possible effects of NBFI failure on banks and financial stability, according to a BIS statement. It also calls for more gradual and timely data on the linkages between banks and NFIBs.
The report said that while reforms enacted since the 2008 financial crisis have made the banking system more resilient, “differences between bank and NBFI regulations may have incentivized the shift of business activities to the NBFI sector, which is drawing on services provided by banks. As a result, banks may be exposed to risks which are more difficult to monitor and measure due to increased complexity and data gaps.”
