Discussion Paper

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

Abstract: Nonbank financial institutions (NBFIs) are growing, but banks support that growth via funding and liquidity insurance. The transformation of activities and risks from banks to a bank-NBFI nexus may have benefits in normal states of the world, as it may result in overall growth in (especially, credit) markets and widen access to a wide range of financial services, but the system may be disproportionately exposed to financial and economic instability when aggregate tail risk materializes. In this post, we consider the systemic implications of the observed build-up of bank-NBFI connections associated with the growth of NBFIs.

Keywords: nonbank financial institutions (NBFIs); non-bank financial intermediaries; nonbanks; systemic risk; spillovers; bank regulation;

JEL Classification: G01; G21; G23; G28;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2024-06-20

Number: 20240620