LONDON (Business Emerge Finance Desk): The global shadow banking system expanded at a significantly faster pace than traditional banks last year, pushing the non-bank financial sector to more than half of worldwide financial assets. The segment, which includes financial entities operating outside conventional banking structures, increased its footprint as asset prices rose and borrowing conditions eased.
The expansion occurred across a wide range of financial intermediaries that do not take deposits like commercial banks. These entities include investment funds, private credit firms, pension managers, insurers, and other financial vehicles that provide credit or manage large pools of capital. Together, they continued to gain prominence in global finance during the most recent reporting period.
By the end of 2024, non-bank financial institutions held assets valued at $256.8 trillion, accounting for 51 percent of total global financial assets. This marked the second-highest share ever recorded and placed the sector near levels seen before the global health crisis. Over the same period, assets held by traditional banks grew at a notably slower rate.
Measured on an annual basis, shadow banking assets expanded by 9.4 percent, while banking sector assets increased by 4.7 percent. The difference reflected higher investor participation in market-based financing and stronger valuations across equities, bonds, and alternative assets. Lower interest rates during the period also supported greater activity in non-bank lending channels.
Within the broader non-bank universe, a narrower group of institutions considered to carry bank-like financial stability risks recorded even faster growth. Assets in this category rose by 12.7 percent to $76.3 trillion. This subset includes entities engaged in credit creation and maturity transformation activities that resemble those of banks but without the same regulatory framework. Growth in these activities was particularly pronounced in emerging economies.
The monitoring of shadow banking has been ongoing for more than a decade, following the establishment of a global framework in 2010 to track non-bank financial intermediation. Since then, the sector has grown in scale, complexity, and cross-border linkages. Despite progress in oversight, authorities continue to face challenges in collecting consistent and comprehensive data.
Concerns have intensified around private credit markets, where lending often occurs outside public reporting requirements. Limitations in data availability have made it difficult for regulators to assess risk concentrations, leverage levels, and interconnected exposures. Gaps in statistical and regulatory disclosures remain a key issue in evaluating potential spillover effects on the broader financial system.
Recent corporate failures in the United States involving a subprime lender and an automotive supplier have added attention to lending practices within non-bank credit markets. These events prompted closer examination of underwriting standards, borrower resilience, and investor risk management across private lending portfolios.
In response to the growing size of shadow banking, central banks and supervisory bodies have increased efforts to improve their understanding of potential vulnerabilities. This month, the Bank of England initiated a stress testing exercise focused on the ability of global private equity and private credit firms to withstand a severe financial shock. The exercise aims to assess liquidity pressures, funding stability, and systemic transmission channels.
The continued rise of shadow banking has implications for financial stability, capital allocation, and policy oversight. As non-bank intermediaries play a larger role in credit provision, market functioning, and asset management, authorities are expected to prioritize enhanced data collection and analytical capacity. Ongoing surveillance efforts are set to focus on private assets and their interaction with regulated banking systems, using existing information to guide future supervisory actions.
