Nonbanks Now Hold Half of Global Financial Assets, IMF Says
The International Monetary Fund (IMF) says nonbank financial institutions now hold about half of global financial assets, underscoring a major structural shift in the world’s financial system driven by post-crisis reforms, technological innovation and changing investor behaviour.
According to the Fund, nonbanks have steadily expanded their footprint since the 2008 global financial crisis, when banks sharply curtailed lending amid tighter regulations and risk aversion. The IMF’s latest data show that the share of global credit and financial intermediation provided by nonbanks has risen from about 43 percent during the crisis period to nearly 50 percent by 2023.
“This marks a watershed moment for global finance,” the IMF noted, as a growing share of financial services is now delivered by institutions that are not classified or regulated as banks.
Nonbank financial institutions include a broad and diverse set of firms that provide credit, investment, trading and liquidity services without taking public deposits or holding accounts with central banks. As a result, they do not benefit from safety nets such as deposit insurance or routine access to central bank liquidity, which banks receive in exchange for stricter prudential regulation.
Drivers of nonbank growth
The IMF attributed the expansion of nonbanks to several long-term trends reshaping financial markets.
Governments have benefited from a wider pool of lenders, particularly in bond markets. New nonbank buyers of sovereign debt, including US Treasuries, have boosted market liquidity and helped contain borrowing costs.
In advanced economies such as the United States, technology-driven principal trading firms, including high-frequency and algorithmic traders, have played a growing role in this process.
Mid-sized companies have also gained improved access to financing through private credit funds, which cater to firms that are often considered too risky for traditional bank lending but too small to tap public bond markets.
These funds are typically backed by insurers, pension funds and sovereign wealth funds, whose longer-term and more stable funding structures can enhance financial system resilience during periods of stress.
For households and small businesses, nonbanks—particularly fintech firms—have expanded borrowing options. These range from longer-term consumer loans and “buy now, pay later” products to small mobile-based loans in emerging markets.
By using alternative data and automated systems, fintech lenders have reduced costs and extended credit to borrowers previously underserved by banks.
Investment opportunities have also broadened. Passive investment vehicles and index funds have grown rapidly, especially as returns on traditional safe assets declined. In the United States, passive funds’ share of assets under management rose from 19 percent in 2010 to 48 percent by 2023.
Nonbanks have also made new asset classes, such as commercial real estate and precious metals, more accessible to a wider range of investors.
The IMF noted that some passive investment strategies may also have stabilising effects on markets, as they tend to buy assets when prices fall and sell when prices rise in order to maintain benchmark allocations.
Emerging risks
Despite these benefits, the Fund cautioned that the growing role of nonbanks introduces new vulnerabilities.
One key risk is the potential for “runs” on nonbank institutions, particularly open-ended and money market funds that invest in long-term assets while offering daily liquidity to investors.
During the early stages of the COVID-19 pandemic in 2020, several such funds faced severe liquidity strains and required emergency support from central banks.
Another concern is the use of leverage and margin borrowing by hedge funds and family offices. In stressed market conditions, sudden increases in margin requirements can amplify losses and trigger contagion across the financial system.
The collapse of Archegos Capital Management in 2021, which resulted in significant losses for major global banks, was cited as a notable example.
Policy response
To address these risks, the IMF called for stronger data collection and transparency around nonbank activities, noting that disclosure requirements remain relatively light despite the sector’s growing systemic importance.
The Fund urged regulators to make better use of available data to map interconnections between banks and nonbanks, and to apply advanced analytical tools to assess system-wide risks. It also stressed the need for more proactive supervision as vulnerabilities are identified, both at national and international levels.
In conclusion, the IMF said nonbanks play an increasingly important role in supporting credit provision, market liquidity and financial innovation. However, it emphasised that better oversight of the riskiest activities is essential to safeguard financial stability, while preserving the dynamism that nonbank institutions bring to the global financial system.
