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Are Nonbank Financial Institutions Systemic?

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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.

Suggested Citation

  • Andres Fernandez & Martin Hiti & Asani Sarkar, 2024. "Are Nonbank Financial Institutions Systemic?," Liberty Street Economics 20241001, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:98893
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    File URL: https://libertystreeteconomics.newyorkfed.org/2024/10/are-nonbank-financial-institutions-systemic/
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    More about this item

    Keywords

    nonbank financial institutions (NBFIs); nonbanks; banks; systemic risk; Interconnections;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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