A report from the European Central Bank (ECB) and the European Systemic Risk Board (ESRB) reveals that significant vulnerabilities could arise from the connections between mainly systemic banks and non-bank financial intermediaries (NBFI). However, the report assures that these connections do not presently pose a major threat to financial stability. It suggests that while vulnerabilities are recognized, they are largely confined to a small group of systemic banks within the Eurozone that are also considered globally significant credit institutions.

The report highlights that the ability of these banks to absorb shocks is critical for the resilience of the financial system. It indicates that there are three interlinked roles that banks play in their relationships with NBFIs: liquidity management, the provision of leverage, and market formation. These roles are essential in understanding how shocks in the NBFI sector could affect the banking sector and, consequently, the broader financial ecosystem.

In particular, the loss of funding from non-bank sources can lead to significant instability, and banks have a crucial role in managing these dynamics. The findings of the report not only underscore the interconnectedness of the financial system but also emphasize the need for ongoing vigilance and monitoring to prevent potential future risks and enhance the stability of financial markets across Europe and beyond.