The European Central Bank has published Occasional Paper No 391 in its ChaMP research series, summarising research on how non-bank financial intermediaries affect monetary policy transmission in the euro area. The paper, which reflects the authors’ views rather than necessarily those of the ECB, concludes that the rise of non-bank finance has generally strengthened rather than weakened transmission within the financial sector, especially through credit, while also making transmission more heterogeneous, more dependent on market conditions and more closely tied to financial stability. It notes that non-bank financial intermediaries held 56% of euro area financial assets by the end of 2025. The paper argues that the effect depends primarily on funding structure. Intermediaries funded through uninsured short-term or market-based liabilities, including investment funds, money market funds and some retail credit firms, tend to amplify rate changes because their funding costs reprice quickly and stress can trigger deleveraging, asset sales and spillovers to banks. By contrast, insurers, pension funds and some specialised finance companies with more stable long-term funding can partly cushion short-term rate hikes for borrowers with existing non-bank relationships, although this effect is limited and uneven and may reverse when long-term rates rise. Beyond lending, the paper highlights portfolio rebalancing and collateral dynamics as major transmission channels, with non-banks shifting toward riskier or longer-dated assets during easing and with asset purchases affecting repo markets and collateral scarcity. The paper also identifies stronger amplification during financial stress, when fragile funds face outflows, liquidity pressures and deposit withdrawals from banks, tightening funding conditions and credit supply. It concludes that effective policy calibration requires close monitoring of non-bank funding structures, liquidity risks, collateral conditions and bank-non-bank linkages, supported by further improvements in data and macroprudential tools for market-based finance.
European Central Bank2026-07-06
European Central Bank publishes research paper finding non-bank finance often amplifies euro area monetary policy transmission
The European Central Bank has published an Occasional Paper summarising research on how non-bank financial intermediaries shape euro area monetary policy transmission. The paper finds that non-banks generally amplify transmission, especially when they rely on short-term funding, while some long-term funded insurers and specialised lenders can partly cushion short-rate tightening for certain borrowers. It also highlights portfolio rebalancing, repo market collateral scarcity and stronger stress-period spillovers to banks as key transmission channels.