The European Systemic Risk Board (ESRB) has today published the EU Non-bank Financial Intermediation Risk Monitor 2025 (NBFI Monitor) highlighting key cyclical and structural risks related to non-bank financial intermediation.
Leverage, liquidity mismatches and interconnectedness remain key vulnerabilities across the NBFI sector. Though typically associated with alternative investment funds, high leverage is also prevalent in certain undertakings for collective investment in transferable securities (UCITS funds) designed for retail investors. These funds pursue hedge fund-like strategies, exposing them to significant market and liquidity risks.
This year’s report also examines the role of captive financial institutions (i.e. subsidiaries of non-financial companies providing financial services exclusively to the parent and its affiliates) in facilitating liquidity and financing within transnational corporations. It explores their interconnectedness with private equity and real estate funds and the systemic risks this could pose. These topics, alongside carry trade activity by global hedge funds and the use of bank lending by real estate investment funds, are covered in five special features. Additionally, the report looks at the growing importance of private finance, with non-bank credit provision increasingly complementing traditional bank funding.