Since the global financial crisis, non-bank financial intermediaries (NBFIs)—including funds, insurers, and pension funds—have grown significantly. In Germany, the NBFI sector now holds around 40 % of the financial assets within the financial system, with its share having increased by 15 percentage points since 2009. This development supports a diversified financing of the real economy and promotes cross-border investment. At the same time, recent episodes of market stress have demonstrated that NBFI actors can also pose systemic risks to the entire financial system, particularly in light of increasing cross-border interconnectedness and links with the banking sector. Examples include the “dash for cash” during the COVID-19 market turmoil in March 2020 and the turbulence surrounding LDI strategies of UK pension funds during the UK gilt crisis in 2022.

Against this backdrop, the Eurosystem, with strong involvement from the Bundesbank, has established a High Level Task Force on NBFI. The Task Force has developed proposals to further enhance the macroprudential framework for the NBFI sector, with the aim of strengthening the resilience of the financial system. The final report has now been published, with the following key recommendations:

1. Internationally agreed reforms for the NBFI sector must be implemented promptly and consistently in Europe. Central to this are the recommendations of the Financial Stability Board (FSB), which aim to increase the resilience of the NBFI sector and the financial system as a whole.
2. Enhanced data availability in the NBFI sector is necessary for central banks to effectively fulfill their financial stability mandate. Accessible and high-quality data form the basis for effective macroprudential monitoring, the development of appropriate macroprudential measures, and the conduct of stress tests. Efficient cross-border data access and sharing of existing data, improved data quality, and the harmonization of key datasets are crucial. In addition to targeted legal changes to improve data access and sharing, a central mechanism for operational access to and sharing of relevant data is supported, e.g. a data hub at ESMA. Further measures are recommended to strengthen existing reporting, particularly in less transparent areas such as private debt and hedge funds.
3. A flexible macroprudential tool is recommended to limit liquidity risks in investment funds, for example by extending redemption notice periods. The proposed design is based on the existing tool for limiting leverage risks.
4. Macroprudential governance should be improved through stronger cooperation and coordination between European authorities and central banks, with ESMA – in cooperation with the ESRB – playing a central role. The reciprocal application of macroprudential measures should be voluntary, following a “comply or explain” principle. In addition, ESMA – in cooperation with ESRB – should be granted top-up powers to recommend stricter requirements or to expand existing tools.
5. Work on a European system-wide stress test should be further advanced to capture and assess contagion risks between the banking and NBFI sectors.

Background

The report “Strengthening the macroprudential lens in the regulation of non-bank financial intermediation” was prepared by a High Level Task Force of the Financial Stability Committee (FSC) of the Eurosystem. The findings are intended to contribute to the targeted revision of the macroprudential framework for the NBFI sector.