Addressing Market Dysfunction and Liquidity Stresses in Nonbank Financial Intermediaries

Global Financial Stability Notes, September 23, 2025

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Central banks support markets or institutions because doing so will help them meet their mandate with regard to the maintenance of price and financial stability.
During crises, central banks expand the breadth of their operations, lengthen the duration of lending, and expand the range of counterparties they deal with and the pool of eligible collateral.
The central bank provision of liquidity to banks has long been the staple tool for addressing financial stability risks when stresses arise.
Central banks provided liquidity support for many types of nonbank financial intermediaries (NBFIs) during both the global financial crisis and the COVID-19 pandemic.
The objective of this note is to examine the central bank policy toolbox and to discuss desirable design features of central bank liquidity that may support NBFIs based on recent observations and some long-standing principles.
Robust regulation and supervision are identified as the first line of defense to address and mitigate systemic liquidity risks and to contain excessive risk-taking behavior; the note briefly discusses key regulatory and supervisory priorities for NBFIs.

Central bank actions in crises:
- Expand the breadth of operations.
- Lengthen the duration of lending.
- Expand the range of counterparties.
- Expand the pool of eligible collateral.
Focus of the note:
- Examination of central bank liquidity tools applicable to NBFIs.
- Discussion of desirable design features for liquidity facilities that may support NBFIs, grounded in recent episodes and long-standing principles.

Primary emphasis:
- Robust regulation and supervision as the first line of defense.
Purpose:
- Address and mitigate systemic liquidity risks.
- Contain excessive risk-taking behavior.
Note: The discussion of regulatory and supervisory priorities is concise and presented as complementary to central bank toolkit considerations.