The European Central Bank and the European Systemic Risk Board have published a joint report assessing how funding, credit and derivatives linkages between banks and non-bank financial intermediation (NBFI) entities could transmit and amplify shocks in the European Union, with a particular focus on the euro area. The report concludes that, in Europe, the main systemic concern from bank-NBFI interconnections is funding and liquidity vulnerability, reflecting that euro area banks are aggregate net debtors to the NBFI sector. NBFI entities fund about 15% of euro area bank balance sheets, with a large share in short-term instruments, while total asset-side linkages to NBFI entities amount to about 10% of total bank assets. The analysis highlights rollover and redemption risks where NBFI funding is short-term, concentrated and sometimes foreign-currency denominated, including significant US dollar activity in repo markets. On the asset side, around a quarter of identifiable bank credit exposures are to potentially leveraged NBFI entities, with reverse repo lending to hedge funds identified as the largest source of vulnerability despite collateralisation. Derivatives also feature as a spillover channel, with euro area banks’ gross notional derivatives exposures to NBFI entities rising from EUR 28 trillion to EUR 42 trillion over the past two years, and activity concentrated in a small group of euro area global systemically important banks. The report flags material data gaps and fragmented access to existing datasets as key constraints on risk assessment, particularly for non-EU NBFI entities and for hedge funds, private equity and private credit funds. Policy implications emphasise prioritising improved information sharing and linkage of already-collected data, including targeted legislative changes to data access and sharing provisions, a centralised data access and sharing mechanism, and wider use of internationally recognised identifiers in reporting.
European Central Bank 2026-02-12
European Central Bank and European Systemic Risk Board publish report on financial stability risks from bank links to non-bank financial intermediation
The European Central Bank and the European Systemic Risk Board released a joint report highlighting systemic risks from funding and liquidity vulnerabilities in bank and non-bank financial intermediation (NBFI) linkages in the euro area, with significant concerns over short-term funding and derivatives exposures. The report calls for enhanced data sharing and legislative changes to address data gaps, particularly concerning non-EU NBFI entities and hedge funds.