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Nonbank Financial Institutions

The growing role of NBFIs in U.S. financial markets is a transformational trend with implications for monetary policy and financial stability. Below are resources to better understand NBFIs as well as how the New York Fed engages with them to implement monetary policy.

Understanding NBFIs

New York Fed

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The Disparate Outcomes of Bank‑ and Nonbank‑ Financed Private Credit Expansions

Long-run trends in increased access to credit are thought to improve real activity. However, rapid credit expansions do not always end well and have been shown to predict adverse real outcomes such as lower GDP growth and an increased likelihood of crises. This post investigates how the composition of lending during a credit expansion matters for subsequent real outcomes.

August 20, 2024 | Liberty Street Economics

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The Growing Risk of Spillovers and Spillbacks in the Bank‑NBFI Nexus

The transformation from banks to a bank-NBFI nexus may result in overall growth in markets and wider access to financial services, but the system may be disproportionately exposed to financial and economic instability when aggregate tail risk materializes. This post considers the systemic implications of the observed build-up of bank-NBFI connections associated with the growth of NBFIs.

June 20, 2024 | Liberty Street Economics

Banks and Nonbanks Are Not Separate, but Interwoven

Building on evidence of the dependence of NBFIs on banks for funding, this post explains that the observed growth of NBFIs reflects banks optimally changing their business models in response to factors such as regulation, rather than banks stepping away from lending and risky activities, and then being substituted by NBFIs.

June 18, 2024 | Liberty Street Economics

Nonbanks Are Growing but Their Growth Is Heavily Supported by Banks

Traditional approaches to financial sector regulation view banks and NBFIs as substitutes. This post argues that banks and NBFIs are better described as intimately interconnected, with NBFIs being especially dependent on banks both for term loans and lines of credit.

June 17, 2024 | Liberty Street Economics

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Internal Liquidity’s Value in a Financial Crisis

A question for U.S. financial firms is whether to organize themselves as entities that are affiliated with a bank holding company. This post sheds light on the tradeoffs this affiliation brings.

April 8, 2024 | Liberty Street Economics

International Banking and Nonbank Financial Intermediation: Global Liquidity, Regulation, and Implications

Global liquidity flows are largely channeled through banks and nonbank financial institutions. This paper looks at the common drivers of such flows and how changes in these drivers affect the flows differently across institutions and over time.

March 26, 2024 | Staff Report

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External Resources

Hedge Fund Monitor

The Hedge Fund Monitor is a data visualization tool that aggregates data from public and private sources to provide measures of size, leverage, counterparty concentration, liquidity, complexity, and risk management practices of hedge funds, a type of nonbank financial institution. It is updated monthly and quarterly.

July 31, 2024 | Office of Financial Research

Enhancing the Resilience of Non-Bank Financial Intermediation: 2024 Progress Report

This progress report details recent and ongoing work to enhance the resilience of the NBFI sector, including proposed policies on margining practices and the liquidity preparedness of nonbank market participants for margin and collateral calls as well as a current policy focus around monitoring and addressing risks from leverage in nonbank financial intermediation.

July 22, 2024 | Financial Stability Board

Financial Stability Board Chair's Letter to G20 Finance Ministers and Central Bank Governors

In this letter, Chair Klaas Knot highlights the FSB's work on vulnerabilities in nonbank financial intermediation and calls for the G20’s support in promoting the full implementation of agreed regulatory reforms.

July 22, 2024 | Financial Stability Board

Targeted Consultation Assessing the Adequacy of Macroprudential Policies for Non-bank Financial Intermediation

This European Commission consultation seeks to identify the vulnerabilities and risks of NBFIs, map the existing macroprudential framework for them, and collect feedback on current challenges to macroprudential supervision and areas for further improvement. This is the latest in a series of steps, including reports and legislation, the European Union is taking to create a framework of macroprudential policies for NBFIs.

May 22, 2024 | European Commission

Report on Nonbank Mortgage Servicing

Nonbank mortgage companies carry out critical servicing functions for the residential mortgage market and originate and service the majority of U.S. residential mortgages. This report examines how vulnerabilities of these companies can amplify shocks to the mortgage market and ultimately pose risks to financial stability.

May 10, 2024 | Financial Stability Oversight Council

Where Do Banks End and NBFIs Begin?

In this paper, the authors argue that the businesses and risks of banks and nonbanks are extremely interwoven, having transformed over time. These transformations are at least in part a response to regulation and are such that banks remain special as both routine and emergency liquidity providers to NBFIs.

April 2024 | National Bureau of Economic Research

SEC Adopts Rules to Include Certain Significant Market Participants as “Dealers” or “Government Securities Dealers”

On February 6, 2024, the Securities and Exchange Commission adopted two rules that clarify which market participants, particularly those taking on significant liquidity-providing roles, will be required to register as a “dealer” or “government securities dealer” under the Securities Exchange Act of 1934.

February 6, 2024 | Securities and Exchange Commission

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Engaging With NBFIs

Given the increasing role NBFIs play in the financial system, the New York Fed engages and transacts with them as described below to monitor market developments and to ensure the effective implementation of monetary policy.

New York Fed-ECB Workshop on Nonbank Financial Institutions

The goal of this conference is to stimulate discussion and advance our collective understanding of nonbank financial institutions and their activities. It will cover issues such as vulnerabilities in the NBFI sector, prudential regulation of NBFIs, linkages between banks and NBFIs, and the role of NBFIs in the transmission of monetary policy.

June 21, 2024 | Event

Balance Sheet Reduction: Progress to Date and a Look Ahead

SOMA Manager Roberto Perli discusses how usage of the ON RRP by money market funds has been very responsive to market rates. In addition, among the indicators used to monitor reserve demand conditions, Perli highlights the share of Treasury repo trades conducted at or above the IORB rate, as it could signal a more urgent demand for liquidity.

May 8, 2024 | Speech

Implementing Monetary Policy: What’s Working and Where We’re Headed

SOMA Manager Roberto Perli discusses how the Federal Reserve's monetary policy implementation framework performed over recent stress episodes, with ON RRP and IORB rates anchoring money market rates, and how price incentives for nonbank intermediaries facilitated efficient movement between different Federal Reserve liabilities.

October 10, 2023 | Speech

Primary Dealers

Primary dealers, which include NBFIs such as broker-dealers, are trading counterparties of the New York Fed in its implementation of monetary policy. They are expected to make markets for the New York Fed on behalf of its official accountholders as needed, and to bid on a pro-rata basis in all Treasury auctions at reasonably competitive prices.

Reverse Repo Counterparties

Reverse repo counterparties transact with the New York Fed in the Overnight Reverse Repurchase Agreement Facility (ON RRP) and include primary dealers, banks, money market mutual funds, and government-sponsored enterprises that meet specific eligibility requirements.

Survey of Primary Dealers

In advance of each Federal Open Market Committee (FOMC) meeting, the New York Fed's Open Market Trading Desk surveys primary dealers on economic and financial market topics that have been widely discussed in public venues. Survey questions and summaries of the results are published each FOMC cycle.

Survey of Market Participants

In advance of each FOMC meeting, the New York Fed's Open Market Trading Desk surveys a range of institutional investment firms on economic and financial market topics that have been widely discussed in public venues. Survey questions and summaries of the results are published each FOMC cycle.

Investor Advisory Committee on Financial Markets

This committee serves as a forum for informal discussions on financial, economic and public policy issues and helps inform the New York Fed president and senior management.

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About Nonbank Financial Institutions

Nonbank financial institutions (NBFIs) are playing an increasingly important role in financial markets and intermediation in the United States and abroad. Through this initiative, the New York Fed curates insights and analysis on NBFIs, reports on its engagement with industry participants, and shares notable developments affecting the sector.

Disclaimer

Except where expressly indicated, none of these materials necessarily represent the views of the New York Fed or any other part of the Federal Reserve System.

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