Liquidity mismatches, use of leverage and interconnectedness remain vulnerabilities of non-bank institutions that can affect financial stability, the European Systemic Risk Board said in a new report.
The ESRB published the “EU Non-bank Financial Intermediation Risk Monitor 2025” (NBFI Monitor), which highlights the main cyclical and structural risks associated with non-bank institutions, namely investment funds and other financial institutions that manage assets.
Risks to financial stability
Structural vulnerabilities in non-bank financial institutions could lead to heightened cyclical risks to the stability of the EU financial system, the report highlighted, given the ongoing macroeconomic challenges and increased market volatility.
In particular, vulnerabilities linked to liquidity mismatches and interconnectedness within the non-bank financial institution sector are those that are likely to maximise market pressures and destabilise the broader financial system. Moreover, tighter financial conditions, geopolitical tensions and muted growth prospects raise the risk of disorderly asset price declines.
This could lead to significant losses and put pressure on non-bank financial intermediaries involved in liquidity transformation, the report noted, particularly those with all their exposure to tech stocks or US commercial real estate, or those who rely on high leverage.
For this reason, the analysis stressed the need to enhance stress testing and integrate transaction-level data to better manage systemic risks and ensure financial stability.
