Non-Bank Financial Groups Surpass Traditional Banks in Asset Growth
A recent regulatory report indicates that non-bank entities are increasing their asset accumulation at a rate that outpaces traditional banks.
The report revealed that these groups, comprised of private credit providers, hedge funds, and insurance companies, saw their asset values grow more than double the rate of traditional banking assets in 2024, as stated by the Financial Stability Board (FSB). Specifically, non-bank financial institutions (NBFIs) expanded by 9.4% that year, while the banking sector grew by 4.7%. The NBFI sector now represents 51% of total global financial assets, totaling approximately $256.8 trillion, compared to $191 trillion held by banks.
However, the relationship between the banking industry and NBFIs is becoming more intertwined, which the report notes may increase the risk of shocks spreading across sectors and jurisdictions.
The FSB also pointed out significant gaps in data regarding private credit within statistical and regulatory reports. One major issue is the lack of a consistent definition of private credit across different countries, complicating the identification process.
The jurisdictions reviewed in the report highlighted a diverse range of non-bank entities involved in private finance. This includes firms like private credit groups, trust companies, finance companies, structured finance vehicles, insurance companies, and pension funds.
This report emerged shortly after the FSB convened a meeting to discuss strategies aimed at enhancing the resilience of the NBFI sector.
At that meeting, officials expressed concerns that while non-bank entities play an increasingly prominent role in government debt markets, their use of highly leveraged trading strategies could contribute to heightened market volatility and instability across borders.
The FSB’s apprehensions are echoed by the International Monetary Fund (IMF), which released a report in April addressing issues within the private lending sector. According to the IMF’s Global Financial Stability Report, over 40% of companies borrowing from these institutions reported negative operating cash flow at the end of the previous year.
Additionally, a report from the Boston Federal Reserve Bank revealed that commitments from large banks to private credit and private equity funds are projected to reach $300 billion by the end of 2023, a steep rise from under $10 billion in 2013.
Notably, when firms experience financial shocks, they tend to withdraw from bank credit lines more rapidly than those reliant solely on bank credit, creating pathways for private credit funds to escalate bank credit and liquidity risks in a more balanced fashion.
