Shadow Banking Assets Hit $250 Trillion, FSB Warns of Systemic Risks

The sprawling shadow banking sector has crossed a critical threshold, with global assets reaching $256.8 trillion by the end of 2024, according to the Financial Stability Board’s (FSB) annual global financial monitor. This figure represents a 9.4% year-on-year increase and marks the first time the sector’s assets have surpassed the $250 trillion mark. The growth underscores the accelerating expansion of non-bank financial institutions, a diverse group that includes hedge funds, insurers, and investment funds.

This milestone is not merely a numerical record; it signifies a fundamental shift in the global financial architecture. The shadow banking sector now accounts for 51% of total global financial assets, a share that has returned to its pre-pandemic level. This parity with the traditional banking sector highlights how non-bank financial institutions have become systemically significant, controlling a portion of the financial system equal to that of regulated banks.

The FSB’s data release is accompanied by a stark warning about mounting systemic risks emanating from these less-regulated corners of finance. The watchdog’s concern is rooted in the sector’s sheer scale and its interconnectedness with the broader financial system. Unlike traditional banks, which operate under stringent capital and liquidity requirements, many entities within the shadow banking universe face lighter regulatory oversight, potentially amplifying vulnerabilities during periods of market stress.

The rapid 9.4% growth rate indicates that capital is flowing aggressively into these channels, potentially in search of higher yields outside the constrained traditional banking environment. This influx can fuel asset bubbles, increase leverage, and create complex chains of intermediation that are difficult for regulators to monitor. The FSB’s warning suggests that the very features that make shadow banking attractive—flexibility and innovation—also make it a potent source of potential contagion should a major participant fail or a key market become illiquid.

The sector’s return to controlling 51% of total financial assets is a telling detail. It indicates that the shadow banking sector has not only recovered from any pandemic-era disruptions but has fully reasserted its dominance. This return to pre-pandemic structural norms suggests that the growth trends observed before 2020 have resumed with vigor, potentially compounding the systemic risks that regulators had begun to flag prior to the global health crisis.

The composition of the sector—spanning hedge funds, insurers, and investment funds—means risks are diffuse and varied. Hedge funds may employ high leverage and complex strategies, investment funds face liquidity mismatches if investors rush to redeem, and insurers are exposed to long-term market and credit risks. The collective growth of these diverse entities to a $256.8 trillion footprint creates a multifaceted challenge for global financial stability, demanding a coordinated regulatory response that the FSB is now implicitly calling for with its public warning.