European Central Bank blog finds NBFI shift to US equities and bank lending to foreign NBFIs weigh on euro area firm financing

In a European Central Bank blog post, staff authors argue that cross-border activity by non-bank financial institutions is diverting financing away from euro area firms and weakening the transmission of monetary policy. The post identifies two channels. Euro area NBFIs have shifted portfolios toward foreign assets, especially US equities, and banks have increased lending to NBFIs outside the euro area rather than to firms, contributing to a sluggish recovery in firms' external financing during the ECB's easing cycle. The analysis says euro area NBFI securities holdings grew from about EUR 11 trillion in early 2018 to EUR 17 trillion by the end of 2025, with investment funds accounting for roughly 60% of the total. Since late 2023, NBFIs have increased their allocation to US corporate equities by about 2.7 percentage points through net purchases and reduced their allocation to euro area corporate equities by about 1.5 percentage points. The research cited links a 1 percentage point rise in the share of US equities in NBFI portfolios to a 0.3 percentage point fall in the share of euro area corporate equities. On the banking side, exposures to NBFIs reached about 11% of total assets by the end of 2025, mainly through short-term collateralised loans, and around 80% of the increase in such lending reflected loans to counterparties outside the euro area. The post cites research showing that when a firm's bank increases its lending to NBFIs by 1 percentage point, that firm's access to bank credit falls by 0.55 percentage points on average, with little offset from other banks, NBFIs or private credit.