As non-bank financial intermediaries (NBFIs) have become more important in recent decades, their involvement in funding markets as well as roles in financial crises have also increased. With substantial heterogeneity across NBFIs’ business models and striking differences in the composition of the NBFI sectors across countries, evidence on the transmission of liquidity shocks through NBFIs is still scarce. A new initiative of the International Banking Research Network
(IBRN) includes 11 papers that provide extensive new insights about the rise of the NBFI sector and the roles of NBFIs in liquidity shock transmission, domestically, across borders, and across different financial markets. Some studies also investigate the transmission of shocks from NBFIs to the banking sector.
Background on non-bank financial intermediary developments
In the last two decades, NBFIs in the global financial system have gained substantial importance, both in absolute terms and relative to the traditional banking sector. According to the FSB (2024), by end-2023 the assets under management of the global NBFI sector were about 50% of the private global financial system, with assets of approximately $238.8 trillion. While many countries have banks as the single largest entity type, developments over the last two decades have left the collection of non-bank financial institutions of different types to be often as large as, or larger than, banks in terms of share of total domestic financial assets (Figure 1, reproduced from FSB 2024).
Figure 1 Composition of total domestic financial assets across jurisdictions
Source: Financial Stability Board 2024.
Notes: Data as of 2023, for Russia as of 2020 (and not included in All and emerging market economies). Banks include all deposit-taking corporations. The percentages of OFI assets to GDP for the Cayman Islands (296,237), Luxembourg (19,248), Ireland (1,204), and the Netherlands (567) are not shown since they are particularly high compared to the rest of the jurisdictions.
The heterogeneity of non-bank financial intermediaries is substantial, as some – like insurance companies – operate with generally low leverage and liquidity risk while others include more fragile investment funds and even riskier hedge funds. The key drivers of the growth of the overall NBFI sector have been investment funds (see Figure 2), which have more than doubled as a share of NBFI assets in the past two decades, even while the whole sector has grown. Most NBFIs are less transparent and less regulated than traditional banks. They have also been at the core of many financial crises or at least key amplifiers, such as in the Long-Term Capital Management (LTCM) crisis in 1998, AIG in 2008, the dash-for-cash in March 2020, and the UK gilt crisis in September 2022.
Figure 2 Composition of total global non-bank financial intermediary assets
Source: Own calculations based on Financial Stability Board 2024.
Notes: 21 countries plus the euro area, which comprises for the latest data point the following 20 jurisdictions: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Data for Russia are excluded. Other investment funds (OIFs) are investment funds other than MMFs, HFs and REITs. These include equity funds, fixed-income funds and other funds such as mixed funds, referenced investment funds, external debt investment funds, currency funds, asset allocation funds, etc. ‘Others’ include financial auxiliaries, HFs, REITs, trust companies, finance companies, broker-dealers, structured finance vehicles, central counterparties, captive financial institutions, money lenders and other OFIs (both identified and unidentified). Latest observation: 2023.
What is behind the rise of the non-bank financial intermediaries?
The rise of NBFIs has been attributed to structural changes in economies, such as technological changes in the financial sector and demographic shifts, leading to a secular interest rate decline and a search for yield by investors. Combined with tighter regulation of banks, especially higher capital requirements, this led to a shift in the intermediation of funding from the regulated banking sector to the less regulated ‘shadow banking sector’ (Claessens 2024). There is substantial evidence that this regulatory arbitrage contributed to the rise of the NBFI sector in the US (Irani et al. 2021, Gebauer and Mazelis 2023, and Hodula and Ngo 2024). Ultimately, liquidity demand is a core feature of non-bank intermediation, since the threat of capital redemption is key to aligning the incentives of investors with those of portfolio managers.
Among the contributors to the International Banking Research Network initiative, Aramonte (2025) also focuses on liquidity demand associated with the privatisation of retirement planning and retirement risks in the US. In order to overcome agency problems in the growing delegated asset management, he argues that NBFIs need to be inherently fragile through a liquidity transformation in the spirit of Calomiris and Kahn (1991). For Sweden, Li and Myers (2025) find that demographic changes elevated the needs for capital-based retirement products and the search for yield during the low-interest rate period was also a major factor contributing to the growth, especially of pension funds.
Exposure to and amplification of shocks through non-bank financial intermediaries
Prior studies have argued that the open-end structure of investment funds can bring about a first-mover advantage to redeeming investors, leading to panic-induced withdrawals and elevated sensitivity of net inflows to funds’ underperformance (Chen et al. 2010), especially for corporate bond funds and funds invested in other illiquid securities. Additional important lessons come from the IBRN studies that focus on how liquidity shocks are amplified and transmitted. Marino-Montana et al. (2025) document that Colombian fixed-income funds with an open-end structure have an elevated flow-performance relationship. As a consequence, in periods of significant repricing of risks, such as the COVID crisis, especially illiquid funds experience significant net outflows and liquidity shortages, forcing these funds into fire sales.
The liquidity transformation of open-end investment funds, together with stale pricing of illiquid securities, can also make fund flows susceptible to changes in monetary policy (Kuong et al. 2024).
A series of papers in the IBRN initiative consider monetary policy shocks as the example of liquidity shocks that impact NBFIs, with key quantitative findings summarised in Table 1. Reasonably large monetary policy shocks can induce significant changes in investment fund flows. Fecht and Kellers (2025) show that open-end investment funds in Germany – the third largest investment fund domicile in the euro area – experience significantly lower net flows in response to an unexpected monetary policy tightening by the European Central Bank. Hodula and Malovaná (2025) show that mutual fund flows in the Czech Republic are more sensitive to foreign monetary policy shocks — particularly those from the ECB — than to changes in domestic monetary policy. These effects are primarily driven by changes in inflows rather than redemptions and are significantly amplified during periods of domestic currency depreciation, which increases investor sensitivity to foreign interest rate differentials.
Blanco et al. (2025) extend the analysis to a multi-country setting, comprising nine euro area countries, Switzerland, the UK, and the US, allowing for systematic comparison of the response of mutual fund flows to domestic and foreign monetary policy shocks across different currency blocks. Responses to domestic monetary policy shocks vary significantly across countries and lead, for instance, to increased bond-fund flows into Switzerland and the US, while flows to the euro area and the UK decline. They find similar responses to foreign monetary policy shocks. Interestingly, they document higher sensitivity of passively managed and/or foreign-domiciled funds.
Table 1 Mutual funds: Effects of a 100 basis point contractionary monetary policy surprise
Note: Global fund flows are to a multi-country sample comprising nine euro area countries, Switzerland, the UK, and the US (Blanco et al. 2025).
Several IBRN contributions from across countries also highlight the heterogeneity of different types of fund investors in responding to return or interest rate shocks. Hodula and Malovaná (2025) find that the responses of investor sectors in the Czech Republic differ systematically with their investment horizons and liquidity preferences. Specifically, banks and investment funds — investors with higher liquidity needs — respond more strongly to short-term interest rate differentials and domestic monetary policy shocks, often driving net outflows. In contrast, firms and insurance companies — typically longer-term investors — are more responsive to long-term rate differentials and foreign monetary policy shocks, suggesting greater sensitivity to global yield conditions. Della Corte et al. (2025) inform the role of insurance companies as stabilising investors: when insurers withdraw for reasons unrelated to a fund’s (expected) performance, European funds with other long-term investors could compensate these outflows. Other investment funds left mostly with short-term investors suffered further outflows by these flightier investors.
Spillovers from non-bank financial intermediaries’ liquidity tightening
Liquidity crises at investment funds can lead to fire sales of their underlying assets, causing significant price pressure and market dry-ups (Falato et al. 2012b). Little is known, though, whether monetary policy-induced net outflows from funds also transmit to the securities market. In their IBRN contribution, Ben-Ze’ev et al. (2024) document for investment funds domiciled in Israel that in response to a local monetary policy tightening, retail investors withdraw particularly from bond funds but at the same time invest in money market funds. They find that the sales of fixed-income assets by affected bond funds temporarily impair the market liquidity of these securities. Ben Zeev et al. (2025) show that shocks to capital inflows from foreign financial institutions (FFIs) fundamentally also create persistent increases in convenience yields as measured by wedges between central bank monetary stance and market interest rates, revealing a significant channel through which global capital flows affect monetary transmission and asset pricing in integrated markets.
With the rise of the NBFI sector, not only money market funds but also open-end investment funds, which usually maintain a relatively stable portfolio share of cash and cash equivalent holdings, become an important source of short-term refinancing for the banking sector in many countries (see European Central Bank 2025). This also gives rise to potential spillovers from NBFIs to the banking sector that several IBRN contributions further explore. Müller et al. (2025) investigate the impact of large-scale investment fund redemptions in Colombia on the demand for certificates of deposits (CDs) issued by the domestic banking sector. They show that banks, as a result of funds’ depressed demand for certificates of deposit, experienced significant constraints in their refinancing and had to tighten their credit conditions and cut back their lending.
Moreover, outflows from investment funds, such as those induced by monetary policy shocks, can lead to a decline in wholesale deposits held by funds with banks and amplify the transmission of monetary policy through the deposit channel. Using granular data from Germany, Fecht and Kellers (2025) show that run-prone investment funds, which are particularly affected by outflows due to monetary policy tightening, reduce their cash buffers with banks disproportionately.
Jara et al. (2025) focus on other NBFIs, namely pension funds, which play an important role in the Chilean financial system. They find that internationally invested pension funds in Chile offset capital outflows from Chile resulting from the flight to safety in case of a shock abroad and thereby stabilise funding to the local banking sector. However, they also document that in case of unexpected withdrawals from local pension funds, the liquidity shock also affects the refinancing of domestic banks.
Concluding remarks
The International Banking Research Network initiative, with its focus on the drivers of growth of NBFIs and the responses to shocks across countries, shows that the susceptibility of NBFIs in general, and investment funds in particular, to shocks and unexpected monetary policy changes depends very much on the NBFI type. Transmission of shocks, including monetary policy impulses, is amplified by the characteristics that increase the fragility of NBFIs. Investment funds rather than insurance companies, investment funds with less liquid asset holdings, and investment funds with more flighty investors experience larger outflows in response to a given shock. For example, a larger proportion of short-term investors, such as banks and other funds, heightens sensitivity to domestic monetary policy shocks. Conversely, funds primarily held by insurance companies and non-financial firms are more affected by foreign monetary policy shocks. Geographic domiciliation creates additional vulnerabilities, as funds domiciled abroad are more susceptible to domestic monetary policy shocks according to the Swiss National Bank’s study. Asset characteristics compound these effects: in Colombia, Germany, and the Czech Republic, funds with illiquid asset holdings and stale asset prices exhibit greater fragility and responsiveness to policy changes as investors benefit from first-mover advantage.
The NBFI–bank nexus and associated spillovers represent a second critical dimension that varies substantially across countries depending on interlinkages in wholesale funding and institutional investor roles. Crisis-induced fund redemptions create direct banking sector pressures through multiple channels. In Colombia, such redemptions diminish fund demand for bank-issued certificates of deposit, tightening bank liquidity and credit conditions. Germany exhibits a similar pattern, where investment fund outflows resulting from monetary policy shocks and subsequent portfolio rebalancing lead to reduced wholesale deposit holdings by funds. By contrast, Chile demonstrates a stabilising dynamic where domestic pension funds help stabilise domestic bank funding during capital outflows, though unexpected withdrawals from these same pension funds can reverse this effect. Israel presents yet another pattern, where money market mutual funds benefit particularly from fund reallocation away from risky fixed-income funds during monetary interventions.
These cross-country variations underscore that NBFI vulnerabilities and their transmission to the banking sector are highly dependent on domestic financial architecture and institutional arrangements.
Authors’ note: The views expressed are those of the authors, and do not necessarily reflect the views of the Deutsche Bundesbank, the Eurosystem, the Federal Reserve Bank of New York, or the Federal Reserve System. The authors would like to thank the participants of the International Banking Research Network initiative on NBFIs and Liquidity for rich discussions and careful research content.
References
Aramonte, S (2025), “Liquidity imbalances in non-bank intermediation: Taming demand or bolstering supply?”, Federal Reserve Board.
Ben-Ze’ev, N, S Ribon and R Stein (2024), “Monetary policy and the mutual fund market: Funding and liquidity”, Bank of Israel Discussion Paper 2024.11.
Ben Zeev, N, N Ben-Zeev and D Nathan (2025), “Capital inflow shocks and convenience yields”, Bank of Israel.
Blanco, S, M Koomen and P Yesin (2025), “Heterogeneous effects of monetary policy surprises on bond fund flows”, Swiss National Bank.
Calomiris, C W and C M Kahn (1991), “The Role of Demandable Debt in Structuring Optimal Banking Arrangements”, The American Economic Review 81(3): 497–513.
Chen, Q, I Goldstein and W Jiang (2010), “Payoff complementarities and financial fragility: Evidence from mutual fund outflows”, Journal of Financial Economics 97(2): 239–262.
Claessens, S (2024), “Non-bank financial intermediation: Stock take of research, policy and data”, CEPR Discussion Paper No. 18945.
Della Corte, V, R Gallo, T Makinen and F Palazzo (2025), “Beyond the surface: Open-ended funds’ investor base and their portfolio allocation”, Banca d’Italia.
European Central Bank (2025), “Examining the dynamics of liquid asset holdings in the non-bank financial sector”, Financial Stability Review, May, Box 5, pp 73.
Falato, A, I Goldstein and A Hortacsu (2021a), “Financial fragility in the COVID-19 crisis: The case of investment funds in corporate bond markets”, Journal of Monetary Economics 123: 35-52.
Falato, A, A Hortaçsu, D Li and C Shin (2021b), “Fire‐sale spillovers in debt markets”, The Journal of Finance 76(6): 3055–3102.
Fecht, F and M Kellers (2025), “Monetary policy, fragility, and fund flows”, Deutsche Bundesbank.
FSB – Financial Stability Board (2024), Global Monitoring Report on Non-Bank Financial Intermediation.
Gebauer, S and F Mazelis (2023), “Macroprudential regulation and leakage to the shadow banking sector”, European Economic Review 154, 10440.
Goldstein, I, H Jiang and D T Ng (2017), “Investor flows and fragility in corporate bond funds”, Journal of Financial Economics 126(3): 592-613.
Hodula, M and S Malovaná (2025), “Mutual fund flows in face of domestic and foreign monetary policy shocks: Evidence from supervisory data”, Czech National Bank working paper, forthcoming.
Hodula, M and N A Ngo (2024), “Does macroprudential policy leak? Evidence from shadow bank lending in EU countries”, Economic Modelling 132, 106657.
Irani, R M, R Iyer, R R Meisenzahl and J-L Peydró (2021), “The rise of shadow banking: Evidence from capital regulation”, The Review of Financial Studies 34(5): 2181-2235.
Jara, A and D Moreno (2025), “Between stabilization and volatility: Domestic NBFIs and bank funding in emerging markets”, Banco Central de Chile.
Kuong, J C F, J O’Donovan and J Zhang (2024), “Monetary policy and fragility in corporate bond mutual funds”, Journal of Financial Economics 161(August), 103931.
Li, J and S Myers (2025), “Shadow banks or just not banks? Growth of the Swedish non-bank sector”, Sveriges Riksbank Working Paper.
Ma, S, Y Peng, W Wu and F Zhu (2022), “Bank liquidity hoarding and corporate maturity mismatch: Evidence from China”, Research in International Business and Finance 63, 101776.
Marino-Montana, J S, D Rodriguez-Novoa and C Sanchez-Quinto (2025), “Exploring the flow-performance relation in Colombian open-end investment funds”, Central Bank of Colombia.
Müller, C, M O Busch, M Sarmiento and F Pinson-Puerto (2025), “Fragile wholesale deposits, liquidity risk, and banks’ maturity transformation”, BIS Working Papers No. 1263, Bank for International Settlement.
