The modern financial system is no longer organised around a clear divide between banks and non-banks. Instead, it is characterised by dense and evolving interconnections across institutions, markets, and borders. Section 2.4 of the Global Monitoring Report on Non-Bank Financial Intermediation 2025 published by FSB underscores that this interconnectedness is a double-edged sword: it can enhance risk sharing and market efficiency, but it can also serve as a powerful transmission channel for stress across the financial system .
At an aggregate level, cross-border linkages remain the dominant form of interconnectedness for both banks and non-bank financial intermediaries (NBFIs). For other financial intermediaries (OFIs) in particular, exposures to the rest of the world account for a significant share of their balance sheets, reflecting the globalised nature of investment funds, broker-dealers, and structured finance vehicles. In several major financial centres, cross-border claims and liabilities exceed one-third of OFI assets, highlighting how shocks originating in one jurisdiction can rapidly propagate internationally .
Domestic interconnectedness between banks and non-banks is equally important. Banks and NBFIs are linked through multiple, bidirectional channels. Banks provide credit, repo financing, liquidity facilities, and custodial services to non-banks, while non-banks place deposits with banks, invest in bank-issued securities, and supply funding through wholesale and market-based instruments. The report shows that, in aggregate, banks continue to be net recipients of funding from the NBFI sector, reinforcing their dependence on non-bank balance sheets even as banks remain the core of credit creation .
These linkages vary widely across jurisdictions and non-bank entity types. In some systems, bank funding from NBFIs or OFI funding from banks amounts to less than 1% of assets; in others, it approaches 40%. “Other OFIs” such as hedge funds, central counterparties, trust companies, and structured finance vehicles emerge as particularly important nodes, both as users of bank funding and as providers of funding to banks. Money market funds and investment funds also play a critical role, especially through deposits, repo markets, and holdings of bank securities .
From a financial stability perspective, the concern is not interconnectedness per se, but how it interacts with vulnerabilities such as leverage, liquidity transformation, and maturity mismatch. The report emphasises that balance-sheet linkages capture only part of the picture. Market-based connections—through derivatives, securities financing transactions, portfolio overlap, and common exposures—can amplify contagion even when direct exposures appear manageable. Episodes of market stress in recent years have demonstrated how shocks transmitted via non-banks can quickly feed back into banks, forcing deleveraging, asset fire sales, and liquidity strains .
The key supervisory lesson is that bank-centric regulation alone is insufficient in a system where non-banks account for over half of global financial assets and are deeply intertwined with banks. Monitoring interconnectedness must therefore extend beyond institutional silos to encompass cross-sectoral and cross-border exposures, with particular attention to funding dependencies and market-based transmission channels. As the FSB analysis makes clear, safeguarding financial stability increasingly depends on understanding—and managing—the complex web that binds banks and non-banks together .
References
Financial Stability Board. Global Monitoring Report on Non-Bank Financial Intermediation 2025. Basel: FSB, December 2025.
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