FSB Reports Shadow Banking Expanding Twice as Fast as Traditional Lending

The non-bank financial sector’s share of global assets surged to 51%, amounting to $256.8 trillion last year. This growth occurred at double the rate of the traditional banking industry, as reported by the Financial Stability Board (FSB) on Tuesday.

Non-bank financial intermediaries, often referred to as the “shadow banking” sector, encompass a variety of entities including money market funds, hedge funds, private credit providers, pension funds, and insurers. The rapid expansion of this sector has become a significant concern for regulators, who are increasingly worried about its lack of transparency and the potential risks that could threaten broader financial markets.

According to the FSB, which coordinates financial regulations for the Group of 20 economies, the share of global assets in the non-bank sector is the second-largest on record, closely resembling pre-pandemic levels.

Regulators Seek More Knowledge, Lending Standards Questioned

The sector experienced a year-on-year growth of 9.4%, in contrast to the banking industry’s 4.7%. This expansion was fueled by a “buoyant risk appetite,” driven by rising asset prices and lower interest rates, as highlighted in the report based on the latest available data up to the end of 2024.

When focusing on a narrower definition of non-banks—those whose activities may pose “bank-like financial stability risks”—financial assets grew by 12.7%, reaching $76.3 trillion. Notably, emerging markets exhibited even faster growth, according to the FSB.

In light of these developments, regulators are eager to enhance their understanding of shadow banking. Recently, the Bank of England announced the initiation of a stress test to evaluate how the global private equity and private credit industries would respond to a significant financial shock.

The bankruptcy of two U.S. companies—subprime lender Tricolor and auto parts manufacturer First Brands—has further unsettled credit investors this year, drawing attention to the quality of lending standards within the non-bank sector.

The FSB established a monitoring framework for non-bank financial intermediaries in 2010. However, it expressed ongoing concerns regarding “severe limitations in the availability of data for private credit in statistical and regulatory reports” during its latest update.

“Assessing the potential impact of private assets on financial stability will be a crucial aspect of the FSB’s surveillance efforts in the coming year,” the report stated.

(Reporting by Tommy Reggiori Wilkes; editing by Joe Bavier)

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The non-bank financial sector’s share of global assets surged to 51%, amounting to $256.8 trillion last year. This growth occurred at double the rate of the traditional banking industry, as reported by the Financial Stability Board (FSB) on Tuesday.

Non-bank financial intermediaries, often referred to as the “shadow banking” sector, encompass a variety of entities including money market funds, hedge funds, private credit providers, pension funds, and insurers. The rapid expansion of this sector has become a significant concern for regulators, who are increasingly worried about its lack of transparency and the potential risks that could threaten broader financial markets.

According to the FSB, which coordinates financial regulations for the Group of 20 economies, the share of global assets in the non-bank sector is the second-largest on record, closely resembling pre-pandemic levels.

Regulators Seek More Knowledge, Lending Standards Questioned

The sector experienced a year-on-year growth of 9.4%, in contrast to the banking industry’s 4.7%. This expansion was fueled by a “buoyant risk appetite,” driven by rising asset prices and lower interest rates, as highlighted in the report based on the latest available data up to the end of 2024.

When focusing on a narrower definition of non-banks—those whose activities may pose “bank-like financial stability risks”—financial assets grew by 12.7%, reaching $76.3 trillion. Notably, emerging markets exhibited even faster growth, according to the FSB.

In light of these developments, regulators are eager to enhance their understanding of shadow banking. Recently, the Bank of England announced the initiation of a stress test to evaluate how the global private equity and private credit industries would respond to a significant financial shock.

The bankruptcy of two U.S. companies—subprime lender Tricolor and auto parts manufacturer First Brands—has further unsettled credit investors this year, drawing attention to the quality of lending standards within the non-bank sector.

The FSB established a monitoring framework for non-bank financial intermediaries in 2010. However, it expressed ongoing concerns regarding “severe limitations in the availability of data for private credit in statistical and regulatory reports” during its latest update.

“Assessing the potential impact of private assets on financial stability will be a crucial aspect of the FSB’s surveillance efforts in the coming year,” the report stated.

(Reporting by Tommy Reggiori Wilkes; editing by Joe Bavier)

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