On 6 September 2023, the Financial Stability Board (FSB) published a progress report on enhancing the resilience of non-bank financial intermediation (NBFI).

The March 2020 turmoil underscored the need to strengthen resilience in the NBFI sector, as key funding markets experienced acute stress and public authorities needed to take a wide range of measures to restore market functioning and support the supply of credit to the real economy.

The report presents findings of analytical work on vulnerabilities in particular entities and activities that may contribute to aggregate liquidity imbalances. It also describes policies being developed by the FSB and standard-setting bodies (SSBs) to reduce excessive and potentially destabilising spikes in liquidity demand, focusing on structural liquidity mismatch in open-ended funds and on margining practices.

The report stresses the importance of ensuring that the various policies fit together from a system-wide perspective and warns that until these policies are finalised and fully implemented, the vulnerabilities evident in recent market incidents remain. The report outlines further work to assess and address systemic risk in NBFI that the FSB and SSBs will carry out.

Furthermore, the report identifies certain data gaps that make it difficult to fully assess the vulnerabilities associated with NBFI leverage and outlines policy implications to address these vulnerabilities including:

  • Addressing the most salient data gaps, by considering the use of trade repository data, enhancing reporting requirements for non-banks with high levels of leverage, and expanding disclosure requirements.
  • Containing excessive leverage behaviour, by carrying out further work on haircuts and margins for derivatives and securities financing transactions.
  • Mitigating the financial stability consequences of high NBFI leverage, including by considering measures to enhance prime brokers’ risk management and improve the liquidity preparedness of non-bank investors.

The FSB and SSBs will undertake further policy work to enhance authorities’ and market participants’ ability to identify, monitor and contain systemic risk associated with leverage in NBFI, drawing on the findings of this report.

Table 1 of the report provides an overview of the FSB’s medium-term NBFI work programme, while Table 2 describes work already completed.