The global banking system is at risk of a substantial shock estimated at $4.5 trillion, according to the latest warning from the International Monetary Fund (IMF). The figure represents banks’ exposures to hedge funds, private-credit vehicles and other non-bank financial institutions (NBFIs) that operate largely outside traditional banking regulation.
In its semi-annual Global Financial Stability Report, the IMF said that many large U.S. and European banks have exposures to shadow-bank entities totaling around 9 per cent of their loan books. For some lenders, these non-bank exposures exceed their Tier 1 capital, a warning sign of significant vulnerability.
The IMF flagged several channels of concern:
Liquidity mismatches in non-bank funds, which may trigger forced asset sales in downturns and spill over into regulated banks.
Leverage and size of private-credit markets, where rapid growth has outpaced transparency and regulatory oversight.
Interconnectedness between banks and non-banks, which could amplify stress and transmission of shocks across the financial system.
The report underscores that while advanced economies appear calm, “the ground is shifting” beneath the surface of the financial system. The IMF cautioned that asset valuations are stretched, and underlying vulnerabilities in non-bank finance remain underappreciated.
Policy makers were urged to enhance data collection, improve oversight of non-bank institutions and ensure that exposures of regulated banks to the non-bank sector are fully understood and managed. The IMF emphasised that regulatory reform must keep pace with the rapid expansion of shadow banking.
