On 24 November 2022, the Bank for International Settlements (BIS) published a newsletter on bank exposures to non-bank financial intermediaries.

The newsletter highlights the following:

  • The non-bank financial intermediary (NBFI) sector continues to grow and has the potential to cause financial stability concerns, though its size and the associated risk vary amongst member jurisdictions.
  • Recent episodes of distress highlighted vulnerabilities and deficiencies in some banks’ risk management practices related to NBFIs.
  • Supervisors will continue to monitor exposures, focus on the proper application of existing standards and guidance, and assess the level of observable data to improve the visibility of interconnections between banks and NBFIs.

Furthermore, the Committee recently conducted a risk horizon scanning exercise related to banks’ NBFI activities and discussed supervisory and policy implications resulting from the recent distress of specific NBFIs. These discussions highlighted the following:

  • While the types of NBFIs and the size of banks’ exposures to NBFIs vary across jurisdictions, these exposures are growing in size and have the potential to cause further financial stability concerns.
  • Banks engage with NBFIs across a wide range of transactions. Common NBFI counterparties for banks are investment and pension funds as well as insurance companies and broker-dealers.
  • Supervisors consider bank exposures to highly leveraged counterparties involving derivatives and securities financing transactions to be the riskiest.
  • Supervisors have encouraged banks to improve their practices by reviewing and enforcing existing guidelines and standards.
  • Recent supervisory work revealed weaknesses in some banks’ risk management practices related to commodities trading and highlighted broader counterparty credit risk measurement and management challenges.
  • Existing supervisory infrastructure regarding NBFI-related risk is generally sufficient.