The United States Federal Reserve Vice Chair Randal Quarles said on Tuesday that the non-banking financial system is significantly more fragile, as shown by the impact of the COVID-19 crisis.
“The interconnectedness of our financial system means that it is not enough to understand the vulnerabilities arising from the banking sector. We must also understand vulnerabilities in the nonbank sector and how shocks are transmitted to or from the nonbank sector.”
“When COVID-19 emerged early this year, the global financial system was in several ways fundamentally different than it was at the outset of the financial crisis of more than a decade ago. Regulatory reforms implemented in response to that crisis, changes in technology, developments in U.S. dollar funding, and, importantly, the growth of NBFI all contributed to a changed landscape.”
“Addressing vulnerabilities in the financial system going forward, therefore, will require a holistic perspective given the various linkages within nonbank financial intermediation and between nonbanks and banks.”