INTERNATIONAL BANKING AND NON-BANK FINANCIAL INTERMEDIATION: Global Liquidity, Regulation, and Implications

Abstract

Banks and non-bank financial institutions play extensive roles in global liquidity flows. They each contribute significant elements of global liquidity flows, with some similarities in the forces that drive position changes. However, the sensitivities of these flows to changes in monetary policy and risk conditions have been evolving over time. Microprudential regulation plays a role for banks, and also is a driver of risk migration from bank to non-bank financial institutions. Risk sensitivities, and flightiness of global liquidity, are now strongest in more leveraged nonbank financial institutions, raising challenges in stress episodes. Current policy initiatives target linkages across institutions and associated risks, while also pointing to significant remaining gaps.