While diversifying the sources of credit can make the global economy more resilient, the growth in NBFI has exposed important vulnerabilities in the non-bank sector.
We have seen the problems that these vulnerabilities can cause several times in recent years: for instance, the 'dash for cash' episode during the onset of the pandemic, the strains in commodity markets last year, and more recently the challenges faced by UK pension funds. Thankfully, these strains have proved temporary, but only after massive official sector interventions were deployed.