The global non-bank financial sector, commonly known as “shadow banking,” has expanded at double the pace of traditional lenders, according to a report by Bloomberg citing research by the Financial Stability Board (FSB).
In its latest annual review, the FSB said that non-bank financial intermediaries – including hedge funds, private credit providers, money market funds, pension funds, and insurers – now account for 51% of global financial assets, or $256.8tn, marking the second-largest share on record. The sector grew 9.4% in 2024, compared with 4.7% growth in the traditional banking industry.
A narrower subset of non-bank institutions whose activities pose “bank-like financial stability risks” saw assets rise even faster, increasing 12.7% to $76.3tn, with emerging markets leading the growth.
The rapid expansion has caught the attention of regulators, who cite concerns over transparency, lending standards, and the potential for broader market instability. The FSB highlighted persistent gaps in data, particularly around private credit, which limits the ability to assess the sector’s risks.
This year, the collapse of US firms Tricolor, a subprime lender, and auto parts maker First Brands has further underscored concerns about lending quality within non-bank financial firms. In response, regulators are increasingly focused on stress-testing the resilience of the shadow banking system. The Bank of England recently announced a stress test targeting the global private equity and private credit industries to evaluate how they would weather a major financial shock.
“The assessment of private assets’ potential impact on financial stability will be an important part of the overall FSB’s surveillance work in the year ahead,” the report said.
The findings highlight the growing role of hedge funds and private credit in the global financial system, alongside rising scrutiny from regulators seeking to understand and mitigate systemic risks emanating from the non-bank sector.
