Investment funds, insurers and private-credit providers have become essential to financing markets, but their growing links with banks are creating new questions about liquidity and oversight.
The changing map of financial intermediation
Banks remain central to the financial system, but they are no longer the only institutions connecting savers and borrowers at scale. Investment funds, insurers, pension funds and other non-bank financial institutions play important roles in allocating capital, supplying market liquidity and financing businesses. Their expansion can broaden access to funding and diversify the sources of credit available to the economy.
The scale of the shift is notable. In an October 2025 analysis, the International Monetary Fund said non-bank institutions held around half of global financial assets. The number is a broad global estimate, not a measure of any individual market. It illustrates why developments outside the traditional banking sector now matter to the resilience of the entire financial system.
The central question is not whether non-bank finance is inherently safer or riskier than banking. Different institutions take different risks, operate under different regulatory structures and serve different funding needs. The challenge is to understand what happens when these activities become tightly connected through borrowing, collateral, asset holdings and investor withdrawals.
Why liquidity can disappear under pressure
Liquidity is the ability to meet cash needs or trade an asset without causing a large price change. Some investment vehicles allow investors to redeem quickly while holding assets that may take longer to sell. During calm periods this arrangement may function smoothly. In a market shock, simultaneous withdrawals can force sales at unfavorable prices, potentially affecting other investors and lenders.
The IMF's October 2026 Global Financial Stability Report describes continuing vulnerabilities from liquidity mismatches, leverage and connections across institutions. It notes that stress could be amplified if highly leveraged investors reduce positions at the same time. These are system-level risks, not predictions that a particular fund or institution will fail.
A similar problem can occur when an investor finances an asset through short-term borrowing. If lenders demand additional collateral following a price decline, the investor may need to raise cash quickly. Sales made to meet these demands can push prices lower, creating a feedback loop. The mechanism is familiar in financial markets, but it becomes harder to track when exposures are spread across multiple types of institution.
The links back to banks
Non-bank activity does not exist separately from banking. Banks may lend to funds, provide credit lines, handle derivatives, arrange transactions or act as counterparties. These relationships can support efficient markets, but they are also pathways through which stress may move between sectors.
The IMF's 2025 Global Financial Stability Report highlighted the growing importance of bank and non-bank interconnectedness. In a severe scenario, requests for liquidity from non-bank borrowers may coincide with weaker asset prices and pressure on bank capital. Such stress tests are designed to evaluate vulnerability under assumptions; they should not be presented as forecasts of actual losses.
This is why supervisors increasingly examine exposures in aggregate rather than assessing individual institutions in isolation. A bank may appear well capitalized, and a fund may appear adequately liquid, while their shared counterparties or dependence on the same markets leave the system sensitive to a common shock.
Credit access and financial diversity
There are important benefits alongside these risks. Asset managers and private-credit providers can finance companies that do not use traditional bank lending alone. Pension funds and insurers can supply patient capital for longer-dated needs, while market-based intermediaries can help investors transfer risk and allocate savings.
These benefits should not be ignored when designing oversight. The BIS Financial Stability Institute's summary of work on non-bank resilience notes that a functioning non-bank sector supports financing to the economy while underlining the need to address vulnerabilities that could require extraordinary interventions in a crisis.
The policy challenge is therefore one of calibration. Excessively blunt constraints could restrict useful sources of finance; insufficient oversight could allow leverage and liquidity mismatches to accumulate out of sight. Better data, clearer disclosures and risk-sensitive safeguards can help preserve the benefits without overlooking the connections that amplify shocks.
What a resilient system requires
Several practical priorities follow. Financial institutions need better visibility into counterparties and contingent funding needs. Fund managers need credible liquidity arrangements that reflect their asset holdings. Supervisors need information that makes it possible to assess correlated behavior across banks, funds and other intermediaries rather than examining each balance sheet separately.
Recent research is also paying greater attention to the interaction of sovereign debt markets, leveraged investors and market liquidity. A September 2026 BIS Bulletin found that high public debt and a larger non-bank footprint can alter the conditions under which government bond markets function. The findings underline that deep markets are not necessarily immune to sudden liquidity pressures.
For businesses and households, the immediate effect may be indirect. A financial-market disruption can raise financing costs, reduce credit availability or make it harder for institutions to refinance obligations. This is one reason why the resilience of market-based finance has become a concern well beyond asset managers themselves.
The wider financial stability picture
The direction of financial intermediation is toward a more diverse network of institutions and funding channels. That diversity can distribute risk and create competition, but it also means the weakest point in a period of stress may be difficult to identify in advance.
A sound response is neither to treat non-bank finance as a substitute for prudent banking nor to assume that market-based financing is inherently destabilizing. The task is to understand leverage, redemption rights, collateral demands, counterparty exposure and the incentives that shape behavior under pressure. Greater transparency and coordinated oversight would help policymakers distinguish risks that are contained within one institution from those capable of spreading across the system.
As the financial system evolves, its stability will depend increasingly on the resilience of connections between institutions, not simply the condition of banks alone.
References
IMF, Global Financial Stability Report, October 2026 — https://www.imf.org/en/publications/gfsr/issues/2026/10/13/global-financial-stability-report-october-2026
IMF, Growth of Nonbanks Is Revealing New Financial Stability Risks (2025) — https://www.imf.org/en/blogs/articles/2025/10/14/growth-of-nonbanks-is-revealing-new-financial-stability-risks
IMF, Global Financial Stability Report, October 2025 — https://www.imf.org/en/publications/gfsr/issues/2025/10/14/global-financial-stability-report-october-2025
BIS, Enhancing the resilience of non-bank financial intermediation (2025) — https://www.bis.org/publications/fsi-summary-enhancing-resilience-non-bank-financial-intermediation-executive-summary
BIS Bulletin 136, High public debt, NBFIs and the risk of market dysfunction (2026) — https://www.bis.org/publications/bulletin-136-high-public-debt-nbfis-and-risk-market-dysfunction