The global financial system has entered a new phase. For the first time, more than half of the world’s financial assets are now controlled by non-bank financial intermediaries, including hedge funds, private equity firms, and pension funds, rather than traditional banks.
This shift marks a lasting change in how capital flows around the world. Lending and credit are no longer dominated by banks alone. Non-bank institutions now channel more money through the system than the traditional banking sector ever has.
One of the main reasons behind this transition traces back to the tighter regulations introduced after the 2008 financial crisis. As banks faced stricter rules, higher-risk and higher-return activities gradually moved toward the less regulated non-bank space.
While this evolution has expanded funding options for businesses and investors, it also introduces new risks. Unlike banks, non-bank institutions do not have the same safeguards, such as direct access to central bank liquidity or deposit insurance. That makes them more exposed during periods of market stress.
The concern is not just about non-banks themselves, but how closely they are tied to the broader financial system. Their deep connections with traditional banks mean that trouble in the non-bank sector could quickly spread, amplifying shocks across the global economy.
The central challenge now is making sure these institutions can withstand a crisis without forcing governments or taxpayers to step in.
