Safeguarding the financial system's spare tyre: regulating non-bank retail lenders in the digital era

Non-bank financial intermediaries (NBFIs) encompass numerous firms with distinct business models that provide various financial services. This includes NBFI retail lenders, such as finance companies, mortgage companies, fintechs and big techs that lend to households and small and medium-sized enterprises (SMEs). In this paper, we assess the regulatory requirements applied to NBFI retail lenders in 20 jurisdictions, including those that can accept deposits or their functional equivalent.

Although NBFI retail lenders are exposed to similar risks as banks, prudential requirements vary across and within surveyed jurisdictions. We also find that NBFI lenders are often subject to a piecemeal regulatory approach, despite posing potential vulnerabilities from a microprudential and, in some cases, financial stability perspective.

To enhance prudential oversight, we propose a holistic approach that includes: (i) developing a mix of broad-based and targeted policy measures aimed at NBFI retail lenders; (ii) reviewing existing group-wide supervision frameworks to ensure they capture emerging financial and mixed activity groups that involve NBFI retail lenders; and (iii) establishing suitable institutional arrangements to facilitate micro- and macroprudential supervision. Such an approach may help authorities better safeguard the financial system's "spare tyre", while allowing NBFI retail lenders to continue to perform their valuable role in supplying credit to consumers and SMEs.

JEL classification: G18, G21, G23, G28, L41, L51

Keywords: NBFI, non-banks, non-bank lenders, nonbank mortgage lenders, retail lending, retail lenders, fintechs, fintech credit, big techs, big tech credit, private credit, consolidated supervision, conglomerate supervision