This paper presents an overall analysis of the economics of non-bank financial intermediation, and argues that the financial stability concerns stemming from this sector support the need to fill the regulation gap that exists with respect to other segments (banks, market infrastructures). It examines the structure of markets, the economic incentives of the agents involved and the institutional aspects characterizing this form of intermediation as compared with that performed by banks.
The analysis underlines that financial regulators should pay attention not only to the stability of the individual entities in the non-bank financial sector, but also to the effects that the collective behaviour and activities of these intermediaries may have on the overall financial system and the real economy. It is stressed that the effectiveness of micro-prudential tools is strengthened if they are accompanied by a framework containing policy measures to address systemic risk.
