Non-bank leverage and high public debt strain crisis backstops
Central banks face mounting challenges in crisis management due to record sovereign debt, non-bank leverage and rapid digital runs, the Bank for International Settlements stated at the SUERF Annual Lecture on October 5, 2026.
The new fiscal-financial nexus
Rising public debt and the expansion of non-bank financial intermediaries (NBFIs) have created a new fiscal-financial stability nexus.
In advanced economies, NBFIs are now the largest holders of sovereign debt, where leveraged strategies and margin calls can trigger acute liquidity fragility.
Recent disruptions, including the March 2020 dash for cash and the 2022 UK gilt crisis, demonstrated how forced asset sales overwhelm dealer balance sheets.
Concurrently, digital banking accelerates deposit runs, while shared artificial intelligence models risk driving market-wide herding.
Furthermore, potential runs on stablecoins could transmit stress to short-term funding markets.
Closing the regulatory perimeter
To mitigate these risks, policymakers must establish “congruent regulation” that applies comparable stringency to entities posing similar systemic risks.
Key measures include central clearing for cash and repo markets alongside targeted minimum margin haircuts to constrain leverage.
For emergency facilities, central banks must preserve the backstop principle: interventions should restore market functioning without distorting price discovery or subsidizing ex ante risk-taking.
State-contingent design and transparent exit terms are essential to separate emergency liquidity from monetary stimulus.
Trapped as buyer of last resort
The analysis sharply captures how non-bank leverage exposes sovereign debt markets to sudden runs.
Yet preaching regulatory congruence ignores the persistent political gridlock among competing cross-border supervisors.
Central banks will remain trapped as unconditional lenders of last resort until real enforcement emerges.