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US | Nonbank financial intermediation, financial sector stability, and policy implications

Published on Wednesday, November 18, 2020

US | Nonbank financial intermediation, financial sector stability, and policy implications

Nonbank financial intermediation represents a large share of the U.S. financial sector. In times of crisis, it has been supported by the primary banking regulator - the Federal Reserve. In the absence of changes in oversight, this could lead to increased moral hazard and financial instability over the long run.

Key points

  • Key points:
  • Banks and other depository institutions account for a limited share of the U.S. financial sector.
  • The non-bank financial sector, highly innovative and valuable as it is, might be too big to fail.
  • Non-banks have benefited from increasing policy accommodation over the last four financial cycles.
  • Multiple market dynamics now exhibit carry trade characteristics.
  • Increased moral hazard and fragility might require a change in the overall regulatory approach.

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