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Non-bank Financial Intermediaries and Financial Stability

Author

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  • Aramonte, Sirio
  • Schrimpf, Andreas
  • Shin, Hyun Song

Abstract

The heft of non-bank financial intermediaries (NBFIs) has grown significantly after the Great Financial Crisis. This paper reviews structural shifts in intermediation and how NBFIs have shaped the demand and supply of liquidity in financial markets. We then lay out a framework for the key channels of systemic-risk propagation in the presence of NBFIs, emphasising the central role of leverage fluctuations through changes in margins. An investor's debt capacity is increasing in that of other investors in the system, so that leverage enables greater leverage, and spikes in margins can lead to system-wide deleveraging. In our framework, deleveraging and `dash for cash' scenarios (as during the Covid-19 crisis) emerge as two sides of the same coin, rather than being two distinct stress propagation channels. These findings have implications for the design of NBFI regulations and of central bank backstops.

Suggested Citation

  • Aramonte, Sirio & Schrimpf, Andreas & Shin, Hyun Song, 2022. "Non-bank Financial Intermediaries and Financial Stability," CEPR Discussion Papers 16962, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16962
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    2. Preben Forer & Barak Budnick & Pierpaolo Vivo & Sabrina Aufiero & Silvia Bartolucci & Fabio Caccioli, 2025. "Financial instability transition under heterogeneous investments and portfolio diversification," Papers 2501.19260, arXiv.org.
    3. Albert S. (Pete) & Karamfil Todorov, 2023. "The cumulant risk premium," BIS Working Papers 1128, Bank for International Settlements.
    4. Scheicher, Martin, 2023. "Intermediation in US and EU bond and swap markets: stylised facts, trends and impact of the coronavirus (COVID-19) crisis in March 2020," ESRB Occasional Paper Series 24, European Systemic Risk Board.
    5. Jukonis, Audrius, 2022. "Evaluating market risk from leveraged derivative exposures," Working Paper Series 2722, European Central Bank.
    6. Gaffney, Edward & Hennessy, Christina & McCann, Feargal, 2022. "Non-bank mortgage lending in Ireland: recent developments and macroprudential considerations," Financial Stability Notes 3/FS/22, Central Bank of Ireland.
    7. Kirstin Hubrich & Daniel F. Waggoner, 2022. "The transmission of financial shocks and leverage of financial institutions: An endogenous regime switching framework," Finance and Economics Discussion Series 2022-034, Board of Governors of the Federal Reserve System (U.S.).
    8. Onofrio Panzarino, 2023. "Investor behavior under market stress:evidence from the Italian sovereign bond market," Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 33, Bank of Italy, Directorate General for Markets and Payment System.
    9. Iñaki Aldasoro, 2022. "Comment on "Growing importance of investment funds in capital flows" by Richard Schmidt and Pinar Yesin," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 72(01), pages 41-44, December.
    10. Jukonis, Audrius & Letizia, Elisa & Rousová, Linda, 2022. "The impact of derivatives collateralisation on liquidity risk: evidence from the investment fund sector," Working Paper Series 2756, European Central Bank.
    11. Matteo Aquilina & Giulio Cornelli & Jon Frost & Leonardo Gambacorta, 2025. "Cryptocurrencies and decentralised finance: functions and financial stability implications," BIS Papers, Bank for International Settlements, number 156, May.
    12. Montañez-Enríquez, Ricardo & Ossandon Busch, Matias & Ramos-Francia, Manuel, 2024. "Untangling the finance-growth nexus: The dual role of financial development in the transmission of shocks," Emerging Markets Review, Elsevier, vol. 63(C).
    13. Bush, Georgia & Cañón, Carlos, 2025. "Capital flows: The role of investment fund portfolio managers," Journal of International Economics, Elsevier, vol. 154(C).
    14. Canuto Otaviano, 2023. "Capital flows and emerging market economies since the global financial crisis," Chapters, in: Aleksandr V. Gevorkyan (ed.), Foreign Exchange Constraint and Developing Economies, chapter 10, pages 208-222, Edward Elgar Publishing.
    15. Hogen, Yoshihiko & Kasai, Yoshiyasu & Shinozaki, Yuji, 2025. "Rise of NBFIs and the global structural change in the transmission of market shocks," Journal of Financial Stability, Elsevier, vol. 79(C).
    16. Chari, Anusha & Dilts-Stedman, Karlye & Forbes, Kristin, 2022. "Spillovers at the extremes: The macroprudential stance and vulnerability to the global financial cycle," Journal of International Economics, Elsevier, vol. 136(C).
    17. Bruno Bonizzi & Annina Kaltenbrunner, 2024. "International financial subordination in the age of asset manager capitalism," Environment and Planning A, , vol. 56(2), pages 603-626, March.

    More about this item

    Keywords

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    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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