Bank for International Settlements’ Basel Committee on Banking Supervision publishes horizon-scanning report on bank-NBFI interconnections

The Bank for International Settlements’ Basel Committee on Banking Supervision has published a horizon-scanning report examining how banks and non-bank financial intermediaries (NBFIs) are interconnected and how those linkages could create risks and vulnerabilities for the banking system. The report maps the services and exposures that banks and NBFIs provide to each other and discusses trends shaping their relationship. It describes banks’ provision of leverage, clearing, market-making and underwriting to NBFIs, as well as derivatives trading and, in some cases, ownership links, and notes that these activities expose banks to a wide variety of risks. NBFIs’ exposures to banks include short-term cash placements, holdings of bank-issued securities and trading relationships. Case studies are used to develop stylised scenarios illustrating potential impacts of NBFI failure on banks and financial stability, alongside an emphasis on the need for granular, timely and high-frequency data to understand and monitor these linkages. The Committee will continue monitoring and investigating bank-NBFI interconnections, with a particular focus on synthetic risk transfers, to better assess the benefits and risks they may pose.