“Non-financial intermediaries have massively increased their presence since the great financial crisis,” explained Agustín Carstens, general director of the BIS.
The activities of non-bank financial intermediaries, recognized the former governor of Banco de México, “have obvious implications for the protection of investors, their impact is more far-reaching.”
“When things go wrong, non-bank financial players can trigger or amplify market tension,” he warned. “They affect how monetary policy is transmitted to the economy, how it is implemented on a day-to-day basis and even how it is calibrated and communicated,” explained Carstens.
This sector of finance includes mutual funds, hedge funds, pension funds, and insurance companies, and provides valuable sources of financing for the economy.
Given the growing role of these non-bank intermediaries in the financial system, Carstens advocated a systemic approach to regulate them, key to better address their structural vulnerabilities, particularly liquidity mismatches and hidden leverage; as well as by stricter regulations and by developing an adequate shock absorption capacity.
The foregoing with the aim of pushing them to accumulate a “war treasure” during good times to limit the damage in times of tension in the markets.
The financial assets of these non-bank intermediaries amounted to 200 trillion dollars in 2019, which represents almost half of the financial system, estimated Claudio Borio, head of the Monetary and Economic Department of the BIS, in a conference call, noting that this part of Finance has grown much faster than banks in the last decade.
With information from AFP
