Growth of Nonbanks is Revealing New Financial Stability Risks
IMF Blog, October 14, 2025
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- Authors: Tobias Adrian
- Published: October 14, 2025
Main findings
- Stretched asset valuations and pressures in core sovereign bond markets keep financial stability risks elevated amid heightened economic uncertainty.
- Nonbank financial institutions are growing in importance as market makers, liquidity providers, and intermediaries in private credit, real estate, and crypto markets, which can amplify vulnerabilities.
- Nonbanks now hold around half of the world’s financial assets.
- In the United States and the euro area, many banks have nonbank exposures that exceed their Tier 1 capital.
- Nonbanks account for half of daily foreign exchange market turnover, more than double their share of 25 years earlier.
- The IMF’s Global Stress Test (GST) modeling a stagflationary shock finds that banks holding about 18 percent of global assets would see their Common Equity Tier 1 ratios fall below 7 percent.
- A spillover stress scenario in which nonbanks become riskier and fully draw their credit lines from banks implies that about 10 percent of US banks and 30 percent of European banks (by assets) would see their regulatory capital ratios fall by more than 100 basis points.
- Analysis of US mutual funds shows that, assuming outflow patterns similar to March 2020 and an 80-basis-point increase in interest rates, forced bond sales could reach nearly $200 billion—three-quarters of which would be Treasury securities.
Transmission channels and risks
- Direct bank exposures to nonbanks: banks’ losses and capital declines increase sharply alongside stress among nonbanks, demonstrating rapid transmission to the core banking system and complicating crisis management.
- Open-ended investment funds: liquidity mismatches (quick redemptions vs. slow asset sales) can force funds to sell highly liquid assets during volatility, potentially overwhelming dealer intermediation capacity and disrupting market functioning and funding markets.
- Private credit, real estate, and crypto markets: nonbank activity in these channels requires focused policymaker attention.
- Cross-border flows: foreign nonbanks remain key investors in emerging market assets; sudden withdrawals could tighten emerging market financial conditions, so distinctions between domestic and foreign nonbanks matter.
Analytical and methodological advances
- The Global Financial Stability Report (GFSR) introduces a new layer of stress-test analysis focused on spillover risks between nonbanks and banks.
- Some regulators (United Kingdom and Australia) have begun integrating system-wide stress tests and scenario analysis to study bank–nonbank interactions; these efforts highlight the need for better data, stronger domestic and cross-border coordination, and regulatory innovation.
Policy priorities and recommendations
- Strengthen capital and liquidity in banks by implementing internationally agreed standards, notably Basel III.
- Advance recovery and resolution frameworks for banks and enhance central banks’ emergency liquidity assistance to safeguard the banking sector against contagion.
- Enhance supervision of nonbanks:
- Collect more comprehensive data on assets, leverage, and liquidity.
- Improve forward-looking analysis, including system-wide liquidity examinations.
- Strengthen coordination among sector supervisors domestically and across borders.
- Focus regulatory attention on private credit funds, which are less transparent and less firmly regulated.
- Improve and expand the availability and usability of liquidity management tools for open-ended investment funds to reduce the risk of forced sales.
- Maintain prudent fiscal and monetary policies, limits on external imbalances (such as current account deficits and external debt), and effective lender-of-last-resort and emergency liquidity assistance.
Source: IMF blog by Tobias Adrian, October 14, 2025, based on Chapter 1 of the October 2025 Global Financial Stability Report, “Shifting Ground Beneath the Calm: Stability Challenges amid Changes in Financial Markets.”