During a public hearing in Brussels, the senior policy fellow for financial markets highlighted the growing role of non-banking financial institutions (NBFI) in the financial system, the risks associated with their interconnectedness with traditional banks, and the need for stronger EU-wide supervision.
On 19 March 2025, Senior Policy Fellow Sebastian Mack addressed the Committee on Economic and Monetary Affairs (ECON) of the European Parliament on the adequacy of the macroprudential framework for Non-Bank Financial Institutions (NBFIs). The public hearing invited four experts to share their information and perspectives on the subject. Francesco Mazzaferro of the European Systemic Risk Board, Julia Symon of Finance Watch and Peggy Steffen of the German Investment Funds Association addressed the committee alongside Mack.
“While the CMU agenda – now rebranded as Savings and Investments Union – seeks to reduce Europe’s reliance on banks, the intermediation activities of NBFIs and banks have become closely intertwined – and so have their risks”, Sebastian Mack stated. Stressing this growing interconnectedness between banks and NBFIs, he warned that banks provide NBFIs with leverage through loans and credit lines, which could amplify financial instability.
He also pointed out that “the opaqueness of private markets allows risks to migrate from well-regulated banks to NBFI sectors with lower transparency requirements”. With regards to these opaque reporting practices and the rising concerns about banks offloading high-carbon assets to NBFIs, Mack argued that “the private finance entities should more fully disclose their leverage and relevant exposures to banks, prime brokers and other regulated firms.”
Concerning supervision, Sebastian criticized the fragmented EU oversight framework: “No effective mechanism exists for coordinating measures at the EU level.” He proposed giving the European Securities and Markets Authority (ESMA) greater supervisory power over systemic NBFIs and improving data-sharing among regulators.
Sebastian concluded by urging the EU to act: "Given the structural vulnerabilities in the NBFI sector, I think the EU should not put necessary reforms of the macro-prudential framework on the back burner. Further integrating financial supervision at EU level and enhancing transparency through additional reporting will likely face resistance. However, these measures are essential to support the beneficial role that non-banks play in financial intermediation."
His intervention underscored the need for urgent regulatory updates to ensure that NBFIs contribute to, rather than destabilize, Europe’s financial system.
You can find the recording of the hearing in the Multimedia Centre of the European Parliament.
A written version of the statement made by Sebastian Mack is available here.