Discussion Paper

Are Nonbank Financial Institutions Systemic?

Abstract: Recent events have heightened awareness of systemic risk stemming from nonbank financial sectors. For example, during the COVID-19 pandemic, liquidity demand from nonbank financial entities caused a “dash for cash” in financial markets that required government support. In this post, we provide a quantitative assessment of systemic risk in the nonbank sectors. Even though these sectors have heterogeneous business models, ranging from insurance to trading and asset management, we find that their systemic risk has common variation, and this commonality has increased over time. Moreover, nonbank sectors tend to become more systemic when banking sector systemic risk increases.

Keywords: nonbank financial institutions (NBFIs); nonbanks; banks; systemic risk; Interconnections;

JEL Classification: G01; G21; G22; G23; G24;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2024-10-01

Number: 20241001