Growing Non-Bank Financial Sector Poses Significant Risks

The Financial Stability Board (FSB), acting as the G20's financial risk watchdog, has issued urgent recommendations for governments to address the increasing risks associated with hedge funds, insurers, and other non-bank financial intermediaries. These entities now account for nearly half of global financial assets, having grown by around 130% between 2009 and 2023.

According to the Basel-based FSB, this rapid expansion has made financial markets more vulnerable to stress events due to increased complexity and interconnectedness within the financial system.

FSB Secretary General John Schindler emphasized that "if not properly managed, these factors can pose substantial risks to financial stability." The FSB's consultation report outlines several measures to mitigate these risks, including the creation of domestic frameworks to monitor non-bank leverage, the selection of policy measures to address identified risks, and improved cross-border cooperation.

Additionally, the report calls for enhanced private disclosure practices in the non-bank sector and the implementation of revised guidelines on counterparty credit risk management by the Basel Committee on Banking Supervision. The FSB is inviting comments from member governments and institutions on its policy recommendations, with a final report planned for release in mid-2025.