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Rise of NBFIs and the Global Structural Change in the Transmission of Market Shocks

September 5, 2022
Yoshihiko Hogen*1
Yoshiyasu Koide*2
Yuji Shinozaki*3


The March 2020 market turmoil raised concerns over vulnerabilities associated with the increasing market interconnectedness with Non-Bank Financial Intermediaries (NBFIs), most notably investment funds, in the global financial system (GFS). Studies on the measurement of fire sale vulnerabilities in part those associated with NBFIs in a financial system are often conducted at the jurisdiction level using fire-sale (FS) models. While existing studies use granular data to analyze details of fire sale dynamics; in most of these cases, the scope of analysis is focused on a certain jurisdiction or asset class, leaving the cross-jurisdiction or cross-asset spillover dimension out of the scope. To address these points, this paper measures cross-border and cross-asset spillovers of market shocks ("interlinkage effect") in the GFS using a standard FS model, specifically focusing on the role of NBFIs. With the help of existing FS models, we construct measures of the interlinkage effect across different types of financial institutions, including banks and various types of NBFIs, in Japan's financial system as well as those for the foreign financial system (the U.S. and Euro area) using flow of funds data of these jurisdictions. We find that the interlinkage effect has increased substantially, not only for Japan's financial system, but also for the overseas financial system since the Global Financial Crisis (GFC). These increasing interlinkages of NBFIs with various types of entities suggest there has been a global structural change in the transmission of market shocks.

JEL classification
G10; G11; G21; G23

Interconnectedness; NBFI; cross-border spillovers; fire sales; systemic risk

The authors would like to thank Hitoshi Mio, Nao Sudo, Koichiro Suzuki and colleagues at the Bank of Japan for comments and discussions. Any remaining errors are the sole responsibility of the authors. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  1. *1Financial System and Bank Examination Department (currently at the Research and Statistics Department), Bank of Japan
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  2. *2Financial System and Bank Examination Department , Bank of Japan
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  3. *3Financial System and Bank Examination Department (currently at the Institute for Monetary and Economic Studies), Bank of Japan
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