Explainer: Five Megatrends Shaping the Rise of Nonbank Finance
IMF Blog, September 29, 2025
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- Authors: Jay Surti
- Published: September 29, 2025
Overview and scale
- Half of all financial assets worldwide are now held and intermediated by companies that are not classified and regulated as banks.
- Nonbank financial institutions increased their share of global credit and finance from 43 percent during the 2008 crisis to nearly 50 percent by 2023.
- More than a billion more people have access to credit thanks largely to newer tech-based lenders.
Definitions and distinguishing features
- Nonbank financial institutions: financial companies that provide credit, trading and investment services but don’t take deposits from the public or have accounts with the central bank.
- Key implication: nonbanks are not covered by safety nets like deposit insurance and liquidity assistance, which banks have access to in exchange for comprehensive prudential regulations.
Five megatrends driving nonbank growth
- Governments have new lenders, enhancing liquidity and holding down rates:
- New nonbank buyers for bonds such as US Treasuries provide additional liquidity, helping markets operate efficiently and helping hold down interest on national debt.
- Principal trading firms such as Citadel Securities and Jane Street Capital developed technology-driven high-frequency and algorithmic trading business models that have fueled this trend.
- Mid-sized businesses have gained more access to funding:
- Private credit funds provide funding for businesses that may be too large or risky for banks to lend to, but too small to issue their own bonds.
- Many such funds are managed by private equity firms, which get financing from banks and other nonbanks.
- Typical nonbank investors in these funds include insurers, pension funds, sovereign wealth funds, and endowments; these tend to have lower leverage and funding that is more stable over longer terms compared to banks.
- More borrowing options for consumers and small businesses:
- Credit variety ranges from longer-term auto loans, to “buy now, pay later” loans, and small mobile money loans in countries like Kenya.
- Fintech lenders pioneered new sources of data for underwriting and made servicing cheaper through automation, enabling smaller loans to more people; in emerging and developing economies they expanded mobile payments and follow-on financial services.
- Investors of all sizes have more ways to diversify portfolios:
- Investment funds, particularly passive investment vehicles, expanded access to capital markets for individual investors.
- Index funds increased their share of assets under management in the United States from 19 percent in 2010 to 48 percent by 2023.
- Nonbanks made new asset classes, including commercial real estate and precious metals, available to more investors.
- Passive funds’ predictable trading—buying shares that get cheaper and selling as their value rises—has, as they attained great size, helped to stabilize markets.
- Nonbank innovation broadened financial services while introducing distinct risks.
Risks and failure scenarios
- The classic “run on a (non)bank” scenario:
- Open-ended and money market funds make long-term investments but promise customers the ability to withdraw at any time.
- During the early-COVID “dash for cash” in 2020, some were running out of cash (a liquidity crisis) and needed help from central banks, including the Federal Reserve; governments did not lose money but did take on risk for these nonbanks.
- The “margin call plus contagion” scenario:
- Borrowing on margin amplifies profits and risks; some hedge funds and family offices borrow large amounts with little collateral to leverage bets.
- In stress, counterparties can move from requiring too little collateral to requiring too much, amplifying risks and causing contagion.
- Example: the Archegos Capital Management family office collapse in 2021 caused significant harm to large global banks.
Policy recommendations and regulatory priorities
- Get more and better data:
- Nonbanks borrow heavily from banks and others, yet disclosure and reporting requirements are light; neither market participants nor financial regulators have a comprehensive view of macro-financial stability risks from the sector.
- When transaction information can’t be public for competitive reasons, it should be visible to regulators—and shared across borders.
- The Financial Stability Board’s Nonbank Data Task Force is helping increase visibility.
- Use data to improve risk analysis:
- Regulators can better map connections between banks and nonbanks, and among nonbanks, using new models and technology to understand global financial risks.
- Leading examples include the Bank of England’s System-Wide Exploratory Scenario, first conducted in 2023, and the IMF’s recent work on systemwide financial stability risks in the euro area.
- Use risk analysis to strengthen supervision:
- As risks are better understood, national and international regulators can more quickly spot and intervene forcefully to make global finance less vulnerable to shocks.
Bottom line
- Nonbanks are a diverse group whose growth offers benefits—greater access to credit, more funding channels for mid-sized businesses, broader consumer borrowing options, and expanded investment choices.
- It is necessary to better understand nonbank activity and ensure that their riskiest activities are appropriately regulated to reduce potential risks to the financial system and economic activity, while allowing space for dynamism and innovation in financial services.
Source: Explainer: Five Megatrends Shaping the Rise of Nonbank Finance, Jay Surti, September 29, 2025.