Kamiyama flags NBFI growth, risks to Japan's financial system
Bank of Japan Executive Director Kamiyama highlighted the growing role of non-bank financial intermediaries (NBFIs) and investment funds at the AIMA Japan Annual Forum on May 14. He discussed their global expansion, characteristics in Japan, and potential risks to financial system stability.
Non-banks now dominate global financial assets
BOJ Executive Director Kamiyama began by outlining the global expansion of non-bank financial intermediaries (NBFIs), which now hold approximately 50 percent of total financial assets, surpassing the banking sector's roughly 40 percent.
This growth reflects NBFIs' ability to offer specialized financial products and services tailored to diverse social needs.
Investment funds, including hedge funds, private equity funds, and private credit funds, play an increasingly significant role.
Hedge funds contribute to market efficiency through leveraged, flexible, and high-frequency arbitrage trading.
Private equity and private credit funds have seen rapid growth by meeting companies' diverse funding needs, particularly in the United States, where they became integral alternative financing channels after the 2008 financial crisis.
Global investment trends also show a growing willingness among investors to take risks in alternative assets like real estate and unlisted stocks, further driving the expansion of these funds.
Japan's NBFIs catching up, BOJ flags systemic risks
In Japan, NBFIs account for about 30 percent of total financial assets, a lower share than globally, but are steadily gaining presence.
Foreign hedge funds are increasingly active in Japanese stock and bond markets, driving surging sales and purchases of Japanese government bonds (JGBs) through arbitrage and hedging.
Private equity funds also play a prominent role in facilitating business restructuring and M&A, supporting corporate management and fostering new growth.
The Bank of Japan focuses on three key areas for financial system stability: understanding diverse NBFI risks, assessing their systemic impact, and promoting international cooperation for data sharing and risk assessment.
A growing shadow, a global challenge
The speech highlights a crucial shift in financial intermediation, with NBFIs posing both opportunities and complex risks.
While Japan's NBFI sector is smaller, its increasing interconnectedness with global funds demands proactive understanding and robust international cooperation.
The Bank of Japan's emphasis on data sharing and risk assessment is therefore timely, underscoring the need for adaptive regulatory frameworks to maintain stability.