Euro Area: Publication of Financial Sector Assessment Program Documentation-Technical Note on Systemic Risk Analysis-NBFI

International Monetary Fund

No 2025/211, IMF Staff Country Reports from International Monetary Fund

Abstract: This Technical Note assesses systemic risks within Non-Bank Financial Institutions (NBFIs) as part of the Financial Sector Assessment Program (FSAP) for the euro area (EA). It focuses on counterparty credit risk related to Central Counterparties (CCPs) and potential system-wide spillovers from NBFI liquidity distress, particularly in the investment funds sector. The analysis also quantifies spillovers between the insurance and fund sectors using detailed data on insurers' asset holdings and derivative positions. While potential losses from CCPs' reverse repo positions are modest in absolute terms, they can be significant relative to CCP capital. Stress tests on investment funds reveal potential impacts on core markets and financial institutions due to liquidity needs from redemption shocks and margin calls. The FSAP recommends implementing an EU-wide liquidity stress test to better assess systemic risks from interconnectedness within the fund sector and with other market participants. The analysis highlights the need for additional granular information to accurately gauge funds' liquidity demand and behavioral responses in stress scenarios.

Keywords: securities financing transactions regulation; market scenario; alternative investment; liquidity management tool; management directive; markets authority; system-wide spillover; Liquidity; Stress testing; Mutual funds; Collateral; Liquidity stress testing; Global (search for similar items in EconPapers)
Pages: 55
Date: 2025-07-25
New Economics Papers: this item is included in nep-eec
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