IMF warns of rising global financial stability risks from non-bank financial institutions

The International Monetary Fund (IMF) has raised fresh concerns over the “growing influence” of non-bank financial institutions (NBFIs) on the stability of the global financial system.

In its newly released Global Financial Stability Report (GFSR), unveiled during the 2025 IMF/World Bank Spring Meetings in Washington DC, the Fund called for urgent regulatory reforms to address vulnerabilities emerging from the expanding role of NBFIs.

NBFIs, which span a wide range of financial intermediaries such as insurance companies, pension funds, mutual funds, hedge funds, private equity and credit firms, and finance companies, have become increasingly interconnected with traditional banking institutions.

According to the IMF, this evolving landscape poses heightened systemic risks, requiring immediate regulatory attention.

“As we move into new analysis in this April 2025 GFSR, we highlight the growing role of nonbank financial intermediation and the increased exposure of banks to NBFIs,” the report noted.

“The linkages between banks and nonbanks have been growing, increasing the NBFI’s influence on system wide financial stability. In light of these considerations, improving the regulation of NBFIs should remain a priority.”

While the IMF acknowledged notable progress in enhancing the soundness of the sector—citing reforms in money market funds, liquidity risk controls in mutual funds, stronger margin-setting in central counterparties, and improved counterparty risk management practices—it warned that major vulnerabilities persist.

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The Fund emphasized that as the NBFI sector expanded, so too did its aggregate leverage levels and financial ties to the banking sector.

This trend, the IMF warned, increases the likelihood of forced deleveraging events if NBFIs face margin calls or sudden redemption pressures, potentially triggering broader market turmoil.

“For instance, some hedge fund strategies have seen a steady increase of leverage recently, potentially exacerbating sell-offs, with implications for the broader financial system,” the report stated.

On the positive side, the IMF noted that the rise of NBFIs has helped diversify funding sources, improve capital allocation, and boost market efficiency. However, it stressed that reaping these benefits safely requires a proactive approach to managing emerging risks.

Specifically, the IMF called for policies to curb excessive nonbank leverage and enhance resilience. It recommended strengthening reporting requirements to give supervisors a more comprehensive view of systemic risks and to better differentiate between well-governed institutions and those engaged in excessive risk-taking.

However, the Fund also flagged a major obstacle: data gaps. Incomplete and delayed information about NBFIs undermines the ability of both policymakers and market participants to make informed decisions.

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“To harness the benefits from the growth of NBFIs, it is paramount to strengthen data availability for risk monitoring and assessment,” the IMF said.

“This will enable the private sector and supervisors to have a systemwide view of risks and single out poorly governed institutions that take excessive risks.”

Furthermore, the IMF stressed that national authorities must be equipped with appropriate tools and timely data to manage financial system risks effectively.

Broadening its focus beyond NBFIs, the Fund also underscored the importance of robust trading arrangements and financial infrastructures in maintaining macro-financial stability.

It urged countries to prioritize the interoperability of payment and settlement systems—especially across borders—to ensure seamless financial operations.

The IMF also advocated for the adoption of cutting-edge technologies such as blockchain and artificial intelligence to bolster the security and efficiency of financial systems, describing innovation as key to creating a more resilient and stable financial environment.

The call for tighter oversight and innovation-friendly reforms comes at a critical time as global markets grapple with a shifting financial landscape dominated increasingly by nonbank players.