The rise of non-bank financial institutions: implications for monetary policy

Key takeaways 

• Non-bank financial institutions (NBFIs) have grown significantly in recent years, mainly driven by the growth of investment funds, including hedge funds. These changes reflect the role of bond markets, which have expanded on the back of surging government debt.
• The rise of NBFIs adds uncertainty to monetary policy transmission, as there could be dampening and amplifying effects. Investment funds appear to strengthen transmission while at the same time making it less stable.
• Greater uncertainty about transmission due to structural changes in the financial system reinforces the principle of a gradual policy approach while at the same time calling for flexibility in adjusting policy.

The views expressed in this publication are those of the authors and not necessarily those of the BIS.