Multi-trillion dollar non-banking finance saw its first major retreat last year since the global financial crisis in 2009, with the shrinkage due to higher interest rates hitting asset valuations, a global watchdog said on Monday, Reuters reported. Non-banks, such as investment funds and insurers, have come under closer regulatory scrutiny after the sector, less regulated than banks in parts, grew sharply after the financial crisis as money shifted from the more heavily regulated lenders. This shift raised worries about hidden pockets of leverage and "liquidity mismatches" at money market funds and elsewhere that could hit financial stability in a crisis through interlinkages between banks and non-banks. The Financial Stability Board (FSB), which groups officials, regulators and central bankers from the G20 economies, said the non-bank financial intermediation (NBFI) sector shrank 5.5% to $217.9 trillion in 2022 from the previous year. This reflected valuation losses, especially as investment funds' portfolios were "marked to market" to reflect much higher interest rates which have hit the value of bonds. NBFI, which still accounts for 47.2% of global financial assets that total $461.2 trillion, also fell due to higher rates.
