## gfsnea2025004

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### Introduction: central bank role, risks, and objectives
- Central banks support markets or institutions to help meet mandates for the maintenance of price and financial stability.
- During crises, central banks typically:
  - expand the breadth of their operations,
  - lengthen the duration of lending,
  - expand the range of counterparties and the pool of eligible collateral.
- Central banks have provided liquidity support for many types of nonbank financial intermediaries (NBFIs) during the global financial crisis and the COVID-19 pandemic; more recently, the US Federal Reserve and Bank of England (BoE) have extended access to certain types of NBFIs.
- Financial-stability risks associated with NBFIs include:
  - securities dealers unable to sell or refinance inventory, reducing market functioning;
  - financial firms (including asset managers) facing rising liquidity demands from margin calls or end-investors or reduced access to funding that can lead to fire sales of financial assets.
- Central bank interventions should provide liquidity (not solvency), mitigate moral hazard, and limit risks to the central bank’s balance sheet.
- Scope of the note: examine central bank policy toolbox for supporting NBFIs (market-wide operations, standing liquidity facilities, emergency liquidity assistance) and discuss key regulatory and supervisory priorities.

### Changing nature of financial intermediation and key vulnerabilities
- Expansion of NBFIs:
  - The share of global financial assets held by NBFIs rose from about 40 to nearly 50 percent.
- Roles and evidence:
  - NBFIs intermediate core markets (government and corporate bonds) and drive global capital flows to EMDEs.
  - Empirical evidence cited shows NBFIs can act as shock absorbers by providing credit when bank lending declines, though credit often comes at a higher price.
- Key vulnerabilities:
  - Financial leverage, liquidity, and interconnectedness in segments of the NBFI ecosystem.
  - Interaction of poor liquidity with leverage can produce abrupt unwinds, asset fire sales, and investor runs.
  - Dealer banks are major fund providers to NBFIs, creating bank–NBFI interconnectedness as an amplification channel.
  - Extended low interest rates and loose financial conditions may have pushed NBFIs into riskier assets.

### Assessing systemic importance and candidate targets for support
- Systemic importance determinants: size, interconnectedness, substitutability.
- Authorities should determine in advance which NBFI segments and related markets are candidates for support; potential candidates include:
  - institutions: central counterparties, investment funds, pension funds, money market funds, securities dealers;
  - markets: sovereign and high-quality corporate securities.
- Jurisdictional variation requires national determination.
- Central banks should assess optimal counterparties “through which” policy can be implemented efficiently and with least risk.

### Central bank toolkit: modalities, trade-offs, and design principles
- Modalities and dimensions:
  - Discretionary interventions (market-wide or idiosyncratic) versus standing facilities (on-demand).
  - Support via asset purchases from NBFIs (direct or via traditional counterparties) or lending to NBFIs (may require expanding eligible counterparties).
- Design principles for market-wide interventions:
  - Target systemically important NBFIs and related markets.
  - Have well-specified intervention triggers.
  - Be designed to self-liquidate and return to market-driven trading and price discovery to contain moral hazard and central bank risk.
- Funding liquidity versus market liquidity:
  - Actions should target liquidity problems while leaving solvency issues to fiscal/other authorities, though separation can be difficult.
- Comparative attributes of lending operations versus asset purchases:
  - Lending operations:
    - require close regulator collaboration and data access;
    - effective for short-term liquidity risk in well-regulated NBFIs;
    - limited interaction with monetary policy;
    - shorter-term and easier to unwind;
    - expose central bank to collateral and counterparty risks;
    - may require fiscal indemnity;
    - reduce moral hazard by targeting approved counterparties.
  - Asset purchases:
    - do not require central bank monitoring of individual NBFI solvency;
    - effective for systemic market liquidity problems;
    - can interfere with monetary tightening;
    - harder to unwind;
    - expose central bank to significant financial risks if asset prices fall or rates rise;
    - may require fiscal risk-sharing;
    - can generate moral hazard by backstopping all asset holders.
- Examples and features:
  - Primary Dealer Credit Facility (PDCF): overnight funding facility during global financial crisis; initial commitment for six months, extended for another eight months.
  - Term Securities Lending Facility (TSLF): allowed primary dealers to borrow Treasury securities for 28 days in exchange for lower-quality collateral (appropriately margined).
  - Bank of England gilt intervention (September 2022): 13-day time limit; purchased £19.3 billion of gilts; operation fully indemnified by HM Treasury and intended to be unwound.
- LOLR, standing facilities, and ELA distinctions:
  - Standing lending facilities: permanent, part of monetary policy implementation; provide overnight lending on demand against appropriate collateral.
  - ELA: discretionary, targets individual institutions, may accept lower-quality collateral under conditions and supervisory oversight; requires institutional and legal frameworks, supervisory enforcement capacity, and often fiscal backstops.
- Eligibility and conditionality:
  - High bar for extending standing facility access to NBFIs: recognition of systemic importance plus bank-like regulation and supervision.
  - ELA eligibility can be more flexible, focusing on forward-looking solvency and viability.
  - Lending should be collateralized; conditionality and fiscal backstops mitigate moral hazard and cover solvency uncertainty.
- Communication:
  - Publicly articulate eligibility criteria and regulatory requirements for standing facilities; discretionary lending communications should avoid implying pre-commitment.

### Operational considerations: timing, metrics, and coordination
- Timing of intervention:
  - Intervene too early risks moral hazard; intervene too late requires more sustained involvement.
  - Use market functioning data: trading volumes, bid/offer spreads, price volatility, funding spreads, margin requirements.
- “Discretion under constraints” framework:
  - Use data-driven metrics (heatmaps) to guide interventions: funding spreads, premium versus risk-free benchmarks, margins, volumes, bid-ask spreads, price volatility.
  - Complement metrics with forecast methods (short-term distribution of price changes from volatility models); central bank chooses coverage percentile of predictive distribution to balance moral hazard and market adjustment.
  - Policymaker judgment and market intelligence remain crucial.
- Coordinated crisis management and cross-border considerations:
  - Regulatory coordination across sectors and jurisdictions is essential.
  - Strengthen resolution regimes for systemic NBFIs (including central counterparties and insurers).
  - Cross-border policy design can reduce procyclicality of flows and mitigate exchange rate pressures in EMDEs.
  - Source-country policies: robust NBFI regulation and well-designed central bank interventions.
  - Recipient-country policies: macrofinancial mix including FX intervention, macroprudential measures, and capital flow measures.

### Regulatory and supervisory guardrails to reduce central bank intervention needs
- Essential guardrails:
  1. Incentivize stronger risk management within NBFIs.
  2. Implement adequate and comprehensive regulatory standards.
  3. Conduct well-resourced and intensive supervisory oversight.
  4. Close data gaps to enable timely risk assessment and market discipline.
- Supervision and regulation recommendations:
  - Strengthen internal risk management and conduct comprehensive periodic systemic risk assessments across all NBFIs, including system-wide stress testing and subsector assessments.
  - Focus market assessments on vulnerabilities: liquidity spirals, crowded trades, indirect interconnectedness, derivatives, repos, securities lending, leveraged loans.
  - Apply proportionate regulation tailored to diverse NBFI business models.
  - Require effective use of liquidity management tools (LMTs) for open-ended funds (for example, swing pricing and redemption gates) and align fund liquidity offered to investors with liquidity of underlying assets.
  - Implement previously agreed policies to bolster money market fund resilience (FSB proposals).
  - Enhance resources and operational independence for NBFI supervisory authorities; strengthen cross-border cooperation and data sharing.

### Closing regulatory data gaps: manifestations and implications
- Data gaps remain significant across jurisdictions compared to the banking sector.
- Investment funds:
  - Gaps on liquidity mismatches, granularity of LMTs, and stress-period disclosures.
  - Reporting often limited to high-level liquidity profiles; detailed, time-tiered liquidity classifications exist in some jurisdictions but not others.
  - Asset-characteristics reporting (listing status, credit ratings) often inadequate proxies for liquidity risk.
- Liabilities and investor data:
  - Limited visibility of investor bases due to global distribution, nominee accounts, platforms, and broker-dealers.
  - Investor data often fails to capture notice periods and gates.
- Leverage and other sectors:
  - Hedge fund leverage disclosures improved in some jurisdictions (United States and European Union) but substantial gaps remain globally; open-ended fund leverage disclosures lag.
  - Pension funds: gaps on derivative exposures and fixed-income leverage; third-party asset managers and corporate sponsor liquidity commitments may be outside mandatory reporting.
  - Insurance: third-party managers can obscure synthetic leverage.
- Interconnectedness and cross-border linkages:
  - Multi-layered investments obscure asset ownership and liabilities; FSB notes a large portion of financial assets within NBFIs lack sectoral linkage data.
- Implications for central banks and supervisors:
  - Central banks need access to appropriate data and capacity to interpret it when deciding on market or counterparty support.
  - Establish communication channels and data-sharing arrangements with supervisors and address capacity gaps within central bank staff unfamiliar with NBFI counterparties.

### Box 1 — Leverage and liquidity vulnerabilities in NBFIs: forms, amplification, and measurements
- Forms of leverage in NBFIs:
  - Repurchase agreements.
  - Margin borrowing in prime brokerage accounts.
  - Synthetic leverage via derivatives (futures, swaps).
  - Leverage embedded in financing vehicles (for example, structured finance vehicles with high market exposure and low initial committed equity or mezzanine capital).
  - Example statistic: some investment strategies employ leverage above 20 times net asset value.
  - CLOs can exhibit three layers of leverage—debt issued by sub-investment-grade companies, leverage embedded in the CLO vehicle, and financing on the margin of CLO tranches.
- How leverage amplifies shocks:
  - Leveraged entities are more vulnerable to sudden asset price changes that may force de‑levering and amplify price declines.
  - Fire sales can spread stress, especially under poor liquidity conditions.
  - Interaction among market liquidity, financial leverage, and interconnectedness can amplify asset price changes and spread stress.
- Liquidity vulnerabilities:
  - Only a few NBFI subgroups provide liquidity (example: principal trading firms); most typically demand liquidity (examples: investment funds, insurers, pension funds).
  - Key vulnerabilities include:
    - Liquidity mismatch (example: open-ended funds offering daily redemptions while holding illiquid assets).
    - Liquidity spirals (loss and margin call spirals degrading funding and market liquidity).
    - Crowded trades (concentrated ownership or common exposures amplifying stress).
- Measurements and sample notes:
  - Box Figure 1.1 uses a representative sample of hedge funds globally with total assets under management exceeding $5 trillion.
  - About two-thirds of the hedge funds in the sample are domiciled outside of the United States.

*Source: gfsnea2025004 — Chapter 3 excerpt and Box 1, GLOBAL FINANCIAL STABILITY NOTES, INTERNATIONAL MONETARY FUND.*

### Introduction ...........................................................................................................

### Introduction

### Central bank role and mandate
- Central banks support markets or institutions to help meet mandates for the maintenance of price and financial stability.
- During crises, central banks typically:
  - expand the breadth of their operations,
  - lengthen the duration of lending,
  - expand the range of counterparties and the pool of eligible collateral.
- The central bank provision of liquidity to banks is a traditional tool; central banks have also provided liquidity support for many types of nonbank financial intermediaries (NBFIs) during the global financial crisis and the COVID-19 pandemic.
- More recently, central banks such as the US Federal Reserve and Bank of England (BoE) have extended access to certain types of NBFIs as these entities have grown in prominence and as strengthened prudential regulation reduced banks’ willingness to provide liquidity support.

### Sources of financial-stability risk associated with NBFIs
- Financial stability can be jeopardized when:
  - securities dealers are unable to sell or refinance inventory, reducing their ability to support market functioning;
  - financial firms (including asset managers) face increasing liquidity demands from margin calls or end-investors or face reduced access to funding by lenders, which can lead to fire sales of financial assets (forced sales that result in assets trading below intrinsic value), impairing access to finance for nonfinancial firms and consumers.
- Such market failures can arise from asymmetric information, fragile NBFIs, incomplete markets, or certain externalities.
- Reduced intermediation capacity of broker-dealers can be amplified by internal risk limits; prudential regulation internalizes some intermediation risk but does not eliminate the residual risk that may necessitate central bank coverage.

### Principles for central bank interventions
- As the monopolistic issuer of liquidity, the central bank must be able to provide liquidity support (but not solvency support) when systemic risks arise.
- Central bank interventions should be designed with care to mitigate moral hazard and limit risks to the central bank’s balance sheet.
- Distinct operational modalities are relevant: market-wide operations, standing liquidity facilities, and emergency liquidity assistance (ELA).

### Objectives of the note (scope and focus)
- Examine the central bank policy toolbox for supporting NBFIs, including desirable design features for:
  - market-wide operations,
  - standing liquidity facilities,
  - emergency liquidity assistance.
- Briefly discuss key regulatory and supervisory priorities for NBFIs, recognizing that robust regulation and supervision are the first line of defense to address systemic liquidity risks and contain excessive risk-taking in the NBFI sector.

*Source: gfsnea2025004 - Introduction*

### Chapter 3 of the October 2022 issue on investment funds, Chapter 3 of the April 2022 issue on fintech, Chapter 3 of the 

### Chapter 3 — Addressing Market Dysfunction and Liquidity Stresses in NBFIs

### Changing Nature of Financial Intermediation
- Nonbank and market-based finance grew markedly since the global financial crisis: the share of global financial assets held by NBFIs rose from about 40 to nearly 50 percent.
- NBFIs now intermediate core markets (government and corporate bonds) and drive global capital flows to emerging markets and developing economies (EMDEs).
- Empirical evidence cited: NBFIs can act as shock absorbers by providing credit when bank lending to firms declines, though credit often comes at a higher price (Adrian, Colla, and Shin 2012; Elliott, Meisenzahl, and Peydró 2023; Albuquerque and others 2025).
- Key vulnerabilities identified:
  - Financial leverage, liquidity, and interconnectedness in segments of the NBFI ecosystem.
  - Interaction of poor liquidity with leverage can produce abrupt unwinds, asset fire sales, and investor runs, amplifying price swings.
  - Dealer banks are major fund providers to NBFIs, making bank–NBFI interconnectedness an amplification channel for stress.
  - Extended low interest rates and loose financial conditions may have pushed NBFIs into riskier assets (Kashyap and Stein 2023).

### Assessing Systemic Importance of Nonbank Financial Intermediaries
- Systemic importance assessment should consider three determinants: size, interconnectedness, and substitutability.
- Authorities should determine in advance which NBFI segments and related markets are candidates for support. Potential candidate institutions and markets include:
  - Central counterparties, investment funds, pension funds, money market funds, and securities dealers.
  - Markets: sovereign and high-quality corporate securities.
- Jurisdictional variation is likely; national determination is required to identify systemic institutions/markets.
- Central banks should assess optimal counterparties “through which” policy can be implemented efficiently and with least risk.

### Central Bank Toolkit for Nonbank Financial Intermediaries
- Central bank interventions used during the global financial crisis and the COVID-19 pandemic were broadly successful but carry potential adverse effects: balance sheet risks and moral hazard.
- Dimensions of liquidity provision:
  - Discretionary interventions (market-wide or idiosyncratic) versus standing facilities (on-demand, not typically used in normal conditions).
  - Support modalities: asset purchases from NBFIs (direct or via traditional counterparties) or lending to NBFIs (may require expanding eligible counterparties).
- Design principles for market-wide interventions:
  - Target systemically important NBFIs and related markets.
  - Well-specified intervention triggers.
  - Designed to self-liquidate and return to market-driven trading and price discovery to contain moral hazard and central bank risk.
- Distinction between funding liquidity and market liquidity problems; central bank actions should target liquidity problems while leaving solvency issues for fiscal/other authorities, though separation can be difficult in practice.
- Examples and features:
  - Primary Dealer Credit Facility (PDCF): overnight funding facility during global financial crisis; initial commitment for six months, extended for another eight months.
  - Term Securities Lending Facility (TSLF): allowed primary dealers to borrow Treasury securities for 28 days in exchange for lower-quality collateral (appropriately margined).
  - Bank of England gilt intervention (September 2022): diagnosis focused on market liquidity; Financial Policy Committee announcement distinguished it from monetary policy; 13-day time limit; purchased £19.3 billion of gilts; operation fully indemnified by HM Treasury and intended to be unwound.
- Lending operations versus asset purchases (summary of comparative attributes preserved in Table 3):
  - Lending operations: require close regulator collaboration and data access; effective for short-term liquidity risk in well-regulated NBFIs; limited interaction with monetary policy; shorter-term and easier to unwind; exposes central bank to collateral and counterparty risks; may require fiscal indemnity; reduces moral hazard by targeting approved counterparties.
  - Asset purchases: do not require central bank monitoring of individual NBFI solvency; effective for systemic market liquidity problems; can interfere with monetary tightening; harder to unwind; expose central bank to significant financial risks if asset prices fall or rates rise; may require fiscal risk-sharing; can generate moral hazard by backstopping all asset holders.
- Lender of Last Resort (LOLR), standing facilities, and Emergency Liquidity Assistance (ELA):
  - Standing lending facilities: permanent, part of monetary policy implementation (upper bound of interest rate corridor); provide overnight lending on demand against appropriate collateral.
  - ELA: discretionary, targets individual institutions, may accept lower-quality collateral under conditions and supervisory oversight; typically used when other funding sources exhausted.
  - ELA requires institutional and legal frameworks, supervisory enforcement capacity, and often fiscal backstops.
- Eligibility and conditionality:
  - High bar recommended for extending standing facility access to NBFIs: recognition of systemic importance plus bank-like regulation and supervision.
  - ELA can have more flexible eligibility, focusing on forward-looking solvency and viability rather than strict point-in-time capital thresholds.
  - Lending should be collateralized; conditionality and fiscal backstops mitigate moral hazard and cover solvency uncertainty.
- Communication:
  - Publicly articulate eligibility criteria and regulatory requirements for standing facilities; discretionary lending communications should avoid implying pre-commitment; internal rules can be well-defined without full public disclosure.

### Operational Considerations for Central Bank Interventions
- Timing of intervention:
  - Intervene too early risks moral hazard; intervene too late requires more sustained central bank involvement.
  - Use data on market functioning: trading volumes, bid/offer spreads, price volatility, funding spreads, margin requirements.
- Framework of “discretion under constraints”:
  - Data-driven metrics (heatmaps) should guide interventions; metrics include funding spreads, premium versus risk-free benchmarks, margins, volumes, bid-ask spreads, price volatility.
  - Complement metrics with forecast methods (short-term distribution of price changes from volatility models); central bank chooses coverage percentile of predictive distribution to balance moral hazard and market adjustment.
  - Policymaker judgment and market intelligence remain crucial alongside metrics.
- Coordinated crisis management:
  - Regulatory coordination across sectors and jurisdictions is essential to identify risks and manage crises.
  - Internationally coordinated reforms reduce cross-border spillovers, regulatory arbitrage, and fragmentation.
  - Resolution regimes for systemic NBFIs (including central counterparties and insurers) should be strengthened where absent; address obstacles to cross-border funding in resolution and ability to mobilize collateral across borders.
- Cross-border considerations:
  - Well-designed policies can reduce procyclicality of cross-border flows and mitigate exchange rate pressures in EMDEs.
  - Source-country policies: robust NBFI regulation and well-designed central bank interventions.
  - Recipient-country policies: appropriate macrofinancial mix including FX intervention, macroprudential measures, and capital flow measures.
  - Cross-border coordination reduces regulatory arbitrage and improves implementation.

### Central Bank Interventions Should Complement Established Guardrails
- Essential guardrails to reduce need for central bank intervention and limit moral hazard:
  1. Incentivize stronger risk management within NBFIs.
  2. Implement adequate and comprehensive regulatory standards.
  3. Conduct well-resourced and intensive supervisory oversight.
  4. Close data gaps to enable timely risk assessment and market discipline.
- Supervision and regulation recommendations:
  - Strengthen internal risk management and conduct comprehensive periodic systemic risk assessments across all NBFIs, including system-wide stress testing and subsector assessments.
  - Focus market assessments on vulnerabilities: liquidity spirals, crowded trades, indirect interconnectedness, derivatives, repos, securities lending, leveraged loans.
  - Apply proportionate regulation tailored to diverse NBFI business models; avoid one-size-fits-all.
  - Require effective use of liquidity management tools (LMTs) for open-ended funds (for example, swing pricing and redemption gates) and align fund liquidity offered to investors with liquidity of underlying assets.
  - Implement previously agreed policies to bolster money market fund resilience (FSB proposals).
  - Enhance resources and operational independence for NBFI supervisory authorities; strengthen cross-border cooperation and data sharing; standard-setting bodies to play key roles.

### Closing Regulatory Data Gaps
- Significant regulatory data gaps hinder systemic risk assessment for NBFIs; improvements noted but gaps remain across jurisdictions compared to banking sector.
- Data gap highlights:
  - Investment funds: gaps on liquidity mismatches, granularity of LMTs, and stress-period disclosures; reporting often limited to high-level liquidity profiles; detailed, time-tiered liquidity classifications exist in some jurisdictions (common in US investment funds and EU alternative investment fund managers) but not others.
  - Asset characteristics reporting (listing status, credit ratings) often inadequate proxies for liquidity risk.
  - Liabilities side: limited visibility of investor bases because of global distribution, nominee accounts, platforms, and broker-dealers; investor data often fails to capture notice periods and gates.
  - LMT disclosures lack granularity, particularly for tools like swing pricing.
  - Leverage: hedge fund leverage disclosures improved in some jurisdictions (United States and European Union) but substantial gaps remain globally, especially for complex fund structures and high-risk sub-asset classes; open-ended fund leverage disclosures lag.
  - Pension funds: data gaps on derivative exposures and fixed-income leverage; third-party asset managers and corporate sponsor liquidity commitments may be outside mandatory reporting; significant FX derivative exposure reporting gaps.
  - Insurance companies: relatively stringent regulation, but third-party managers can obscure synthetic leverage.
  - Interconnectedness and cross-border linkages: most pronounced data gaps, with multi-layered investments obscuring asset ownership and liabilities; FSB notes a large portion of financial assets within NBFIs lack sectoral linkage data.
- Implications for central banks and supervisors:
  - Central banks deciding on market or counterparty support (and interpreting related data) face the regulator information asymmetry; require access to appropriate data and capacity to interpret it.
  - Establish communication channels and data-sharing arrangements with supervisors; address potential “capacity gaps” within central bank staff unfamiliar with NBFI counterparties.

*Source: Chapter 3 — Addressing Market Dysfunction and Liquidity Stresses in NBFIs (excerpt).*

### Box 1. Nonbank Financial Intermediaries Leverage and Liquidity Vulnerabilities

### Box 1. Nonbank Financial Intermediaries Leverage and Liquidity Vulnerabilities

### Overview
- Nonbank financial intermediaries (NBFIs) use a variety of leverage and funding approaches that can amplify financial stress and transmit shocks across the financial system.
- Policymakers face limited real-time visibility into NBFI risk-taking because of data gaps, opaqueness, and limited oversight as these entities often operate outside the traditional banking regulatory perimeter.

### Forms of financial leverage in NBFIs
- Repurchase agreements.
- Margin borrowing in prime brokerage accounts.
- Synthetic leverage via derivatives (futures, swaps).
- Leverage embedded in financing vehicles (for example, structured finance vehicles with high market exposure and low initial committed equity or mezzanine capital).
- Example statistic: some investment strategies employ leverage above 20 times net asset value (Box Figure 1.1).
- Note on CLOs: there can be three layers of leverage—debt issued by sub-investment-grade companies, leverage embedded in the CLO vehicle, and the financing on the margin of CLO tranches.

### How leverage amplifies shocks
- Leveraged entities have higher risk of financial distress and are more vulnerable to sudden changes in asset prices that may force de‑levering, amplifying initial price declines.
- Fire sales can spread stress to the wider financial system, especially under poor liquidity conditions.
- The interaction among market liquidity, financial leverage, and interconnectedness can amplify asset price changes and spread stress to seemingly unrelated parts of the system.

### Liquidity vulnerabilities in the NBFI sector
- The NBFI sector includes a wide range of institutions and business models; only a few contribute to the provision of liquidity (example: principal trading firms), while most typically demand liquidity (examples: investment funds, insurers, pension funds).
- Recent stress episodes highlighted liquidity-related fragilities (examples: March 2020 financial market turmoil; liquidity problems associated with defined-benefit pension funds and their liability-driven investments in the United Kingdom).

Key liquidity-related vulnerabilities:
- Liquidity mismatch:
  - Example: open-ended funds offering daily redemptions while holding illiquid assets can amplify shocks through investor runs and asset fire sales, contributing to market volatility and threatening financial stability.
- Liquidity spirals:
  - Combination of leverage and market illiquidity can produce loss and margin call spirals, where asset price declines deteriorate funding liquidity, which then adversely affects market liquidity (Brunnermeier and Pedersen 2009).
- Crowded trades:
  - Concentrated ownership or common exposures combined with correlated liquidity shocks can further amplify stress when market liquidity is poor (Greenwood and Thesmar 2011).
  - The text notes analysis based on a subset of institutions with portfolio data (investment funds) to identify common ownership and potential liquidity strains during correlated outflows.

### Measurements and sample notes
- Box Figure 1.1 uses a representative sample of hedge funds globally with total assets under management exceeding $5 trillion.
- About two-thirds of the hedge funds in the sample are domiciled outside of the United States.
- Data sources cited for Box Figure 1.1: US Securities and Exchange Commission; and IMF staff calculations.

### Offsetting considerations
- Some NBFI entities may face limited liquidity mismatch risk:
  - Example: nonbank lenders in private debt markets that benefit from stable funding (long-term locked-in capital) and may not be subject to mark-to-market requirements.

*Source: Box 1. Nonbank Financial Intermediaries Leverage and Liquidity Vulnerabilities, GLOBAL FINANCIAL STABILITY NOTES, INTERNATIONAL MONETARY FUND.*

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_Source: https://www.imf.org/-/media/files/publications/gfs-notes/2025/english/gfsnea2025004.pdf_