Non-Bank Financial Intermediaries Now Account for 50% of Global Financial System

The Bank of Japan has released a comprehensive research paper analyzing the evolution and role of non-bank financial intermediaries (NBFIs) in key financial systems. The study focuses on three major economies: the United States, Japan, and Germany. NBFIs, which include insurance firms, pension funds, investment funds, broker-dealers, and finance companies, have seen significant growth globally, now accounting for approximately half of the financial system by 2023. Investment funds, in particular, have taken a larger share within this sector. However, the composition and functions of NBFIs vary significantly across these countries due to differences in institutional designs and regulatory frameworks.

The comparative analysis reveals that the United States has the largest domestic role for NBFIs, with these institutions holding 50% of total financial assets. In Japan and Germany, NBFIs make up 20–30% of financial assets. In the United States, investment funds dominate the NBFI sector, holding 60% of their total assets. Insurance and pension funds account for another 30%, with the remaining assets held by other non-bank entities. In Japan, NBFIs are primarily composed of insurance and pension providers. Germany, on the other hand, mirrors the United States in the rising trend of investment funds. Since the global financial crisis, Japan has seen an increase in the presence of foreign NBFIs, rising from 10% to 30% of the market.

In the bond markets, NBFIs hold a larger share compared to banks. In Japan, banks hold 30% of bonds, while in the United States, they hold 20%. US NBFIs control 50% of bond holdings, evenly split between investment and insurance/pension funds. In Japan and Germany, NBFIs hold 40% of bonds, with insurance companies dominating in Japan and investment funds leading in Germany. Japan’s foreign bondholder share has risen from 10% to 30%, primarily displacing domestic banks in recent years.

Despite the growing role of NBFIs, banks continue to issue the majority of loans in all three economies, accounting for 70% to 80% of the total. However, non-bank players such as broker-dealers and finance companies are significant in Japan and the United States. In Germany, European foreign banks are strong participants in the loan markets. The role of NBFIs in loan provision has shrunk in the United States due to less securitization. Germany has shifted from domestic bank loans toward foreign credit sources, altering the loan landscape since the global financial crisis.

In the domestic stock markets, banks have limited influence, with their highest share under 10% in Japan. US NBFIs control over 60% of shares, with investment funds accounting for 80% of this. Foreign investors dominate shareholding in Japan and Germany, holding 60% to 70% of shares. This indicates greater foreign control in these two equity markets compared to the United States. Overall, shareholding patterns in the three countries differ from those observed in bonds and loans.

Cross-border investment by foreign NBFIs has become more prominent in recent years, particularly in Japan and Germany. Japan receives 50% of foreign investment from US-based funds, with Luxembourg and Ireland supplying another 20%. The United States sees 30% of inward investment from Cayman Islands-based funds. These offshore funds often operate in US markets despite being registered abroad. This trend underscores the deep global interconnection between financial systems, particularly through NBFIs’ cross-border capital flows.

The Bank of Japan highlighted three main takeaways in the paper’s conclusion. First, NBFIs vary in structure and importance, with investment funds leading in the United States and Germany, and insurers and pensions dominating in Japan. Second, foreign NBFIs have grown through portfolio investments, particularly from US and offshore funds. Third, banks are increasingly connected to foreign NBFIs, especially in the United States and Japan. These shifts suggest rising global integration and potential risks tied to market volatility and liquidity mismatches within non-bank financial intermediaries.