Patrick Montagner, Member of the ECB Supervisory Board, highlights in his contribution to Eurofi Magazine that the rise of non-bank financial actors has redistributed credit risk across the financial system without excluding banks. While banks’ share of total lending has declined over the past decade, they remain deeply interconnected with private markets through lending to private credit funds, providing credit lines, offering prime brokerage, and holding derivative exposures. These overlapping roles can obscure total exposure to single borrowers, leading to underestimated concentration risks.
Montagner emphasizes that existing supervisory tools face challenges in capturing complex, layered risk structures across multiple entities. Data gaps, limited fund-level information, and opaque investment chains hinder stress-testing and risk assessment. The ECB has launched monitoring exercises and exploratory scenario analyses to better understand banks’ exposures to non-bank financial institutions (NBFIs) and private assets.
He also warns of the risks associated with distributing private market products to retail investors, which could create conflicts of interest and mis-selling risks reminiscent of the 2008 financial crisis. Ensuring proper disclosure, conduct standards, and investor protection is essential.
Within its mandate, the ECB monitors interconnections between banks and NBFIs, focusing on banks’ risk management, concentration limits, and stress-testing practices. Montagner concludes that European banking supervision alone cannot manage all non-bank systemic risks; stronger macroprudential oversight, better data sharing, coordinated stress tests, and international cooperation are crucial to address risks in a globally interconnected, fragmented credit market.
