U.S. Banks and NBFI Exposures: Regulatory Constraints and Responsive Risk Management for those with ExposureBanking Organizations
This commentary reviews U.S. Bank exposure to Non-bank Financial Institutions (NBFIs).
Key highlights include:
• NBFI's comprise nearly half of all total global financial assets; U.S. banks have increased exposure to NBFIs as their exposure to the types of businesses done by the NBFIs has decreased, largely due to regulatory changes.
• NBFIs include all institutions that provide financial services, liquidity, or credit but are outside the formal banking system, mainly since they do not take deposits.
• Regulators are taking a harder look at prime services, liquidity funding, and fintech funding following fintech failures and the performance of certain banks with high prime services exposures during the market events of 1H21.
• U.S. bank regulation includes a broad range of capital and liquidity requirements, stress testing, and limitations on business risk which mitigates exposure
“We find that U.S. banks with currently higher exposure to NBFIs are mainly GSIBs where regulators are actively monitoring exposures, including through the Federal Reserve's CCAR stress testing. These banks hold robust levels of capital and are highly capital generative. Their recent performance through the pandemic downturn and the collapse of Archegos Capital Management demonstrated that they were able to be a channel for supporting the economy. ,” said Rebecca Clarke, Vice President – Global FIG.