The European Systemic Risk Board (ESRB) has published the EU Non-bank Financial Intermediation Risk Monitor 2025, identifying key cyclical and structural risks in non-bank financial intermediation and warning that existing vulnerabilities could amplify financial stability risks in the EU under heightened market volatility. Leverage, liquidity mismatches and interconnectedness remain the main vulnerabilities across the sector. The report notes that high leverage is not limited to alternative investment funds, but is also prevalent in certain undertakings for collective investment in transferable securities (UCITS) marketed to retail investors that pursue hedge fund-like strategies, creating material market and liquidity risks. Five special features examine captive financial institutions within transnational corporations and their links to private equity and real estate funds, carry trade activity by global hedge funds, and the use of bank lending by real estate investment funds, alongside the growing role of private finance in complementing traditional bank funding. It also highlights that geopolitical tensions, tighter financial conditions and subdued growth prospects could worsen credit and market risks, with particular strain on entities engaged in liquidity transformation and those with concentrated exposures to US technology stocks or commercial real estate or reliant on high leverage.

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