The role of non-bank financial institutions in the intermediation of capital flows to emerging markets

Alessandro Moro () and Alessandro Schiavone ()
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Alessandro Schiavone: Bank of Italy

No 1367, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper compares the behaviour of banks with that of non-bank financial institutions (NBFIs) in the intermediation of portfolio flows to emerging market economies (EMEs). Our analysis shows that investment funds, a key component of NBFIs, tend to reduce their exposure to EMEs more than banks during periods of financial turmoil, such as the Covid-19 pandemic. Moreover, passive funds and exchange-traded funds (ETFs) are more responsive to global shocks than active funds. Global funds show a lower elasticity to financial volatility than regional funds, while the behaviours of institutional and retail funds are quite similar. Regarding the currency composition of portfolio investments in EMEs, investment funds cut their assets denominated in USD in response to global shocks more than those in other currencies. Finally, the portfolio inflows to EMEs with a higher share of portfolio liabilities held by investment funds rather than by banks and other financial intermediaries tend to be more sensitive to the global financial cycle.

Keywords: financial intermediation; investment funds; emerging markets; capital flows; financial crisis (search for similar items in EconPapers)
JEL-codes: F32 F36 G11 G15 G23 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-fdg, nep-ifn and nep-mon
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