Introduction
In early 2026, the banking sector maintains broad stability following rate adjustments and improved economic conditions in late 2025. Recent Federal Reserve and European Central Bank assessments indicate resilient asset quality, solid funding profiles, and sustained profitability for major institutions. Global banking assets grew modestly at around 4.7% in 2024 data, per Financial Stability Board (FSB) monitoring. However, attention focuses on non-bank financial intermediation (NBFI), often termed shadow banking, which expanded faster—9.4% in 2024—to $256.8 trillion, representing 51% of total global financial assets, the second-highest share on record and similar to pre-pandemic levels.
Shadow banking involves credit intermediation outside traditional regulated banking, including entities like investment funds, hedge funds, money market funds, private credit providers, and structured finance vehicles. Off-book activities refer to operations not fully reflected on banks’ main balance sheets, such as certain securitizations, asset-backed commercial paper conduits, or exposures through special purpose vehicles (SPVs). These create hidden leverage—amplified exposures via borrowed funds or contingent commitments that obscure true risk levels.
The FSB’s 2025 Global Monitoring Report on Nonbank Financial Intermediation (covering 2024 data) highlights the narrow measure of NBFI—entities posing bank-like risks—at $76.3 trillion, up 12.7% year-on-year, with faster growth in emerging markets. Interconnectedness between banks and NBFIs persists through loans, securities, derivatives, and funding dependencies, exposing banks to liquidity, market, and credit risks. Regulatory bodies express concerns over opacity, leverage mismatches, and potential systemic vulnerabilities, especially as private credit data gaps hinder full assessment. These trends set the stage for predictions on hidden leverage risks in banking via shadow activities in 2026 and beyond.
Main Predictions for 2026
In 2026, hidden leverage in the banking sector through shadow banking and off-book activities is expected to persist and modestly increase, driven by continued NBFI growth and banks’ efforts to optimize capital amid stabilizing but elevated rates. The FSB narrow measure, focusing on credit intermediation with run-like or short-term funding vulnerabilities, grew 12.7% to $76.3 trillion in 2024, outpacing broader NBFI at 9.4%. Predictions indicate sustained expansion, potentially pushing the narrow measure toward $85-90 trillion by year-end if buoyant risk appetite from asset price gains and lower policy rates continues.
Banks will maintain significant exposures to NBFIs via channels like securities holdings, derivatives contracts, and funding dependencies. European data shows eurozone lenders’ exposures doubling since the global financial crisis, with NBFI assets at €31 trillion. In the U.S., non-bank exposures account for nearly 10% of bank loans, per Fitch Ratings, raising concerns about performance under stress. Off-book securitizations and SPVs allow banks to transfer assets while retaining some risk through guarantees or liquidity support, masking leverage.
Asset securitization remains a key off-book tool. Banks originate loans and transfer them to SPVs issuing asset-backed securities, reducing on-balance-sheet assets and capital requirements under risk-weighted rules. While post-crisis reforms require more retention and transparency, residual hidden leverage arises from imperfect risk transfer or layered structures. In 2026, expect increased securitization volumes in areas like corporate loans or private credit, as banks seek yield and capital relief.
Private credit, a fast-growing NBFI segment, introduces hidden leverage risks. Lacking standardized definitions, private credit entities are hard to track in reports, per FSB notes. Banks’ indirect exposures—through commitments or co-investments—can amplify leverage without full balance sheet recognition. Growth in high-leverage segments, driven by yield search and derivatives, is projected to continue.
Regulatory monitoring intensifies. Authorities emphasize data improvements, leverage assessments, and interconnectedness mapping. The FSB’s 2026 work program addresses private credit data gaps. Banks face pressure to disclose NBFI exposures more granularly, uncovering hidden leverage during stress tests or reviews.
Quantitative trends support gradual buildup. NBFI wholesale funding reliance—21.3% of OFI assets—includes repo and market-based sources, with broker-dealers and money market funds heavily involved. Repo stability masks potential deleveraging risks. Banks’ off-balance-sheet commitments, like undrawn lines to NBFIs, add contingent leverage.
Discovery of hidden exposures will occur through routine supervision, stress testing, or market events. Proactive banks enhance internal monitoring, but opacity in complex structures persists.
Challenges and Risks
Hidden leverage via shadow banking poses material risks in 2026. Liquidity and maturity mismatches in NBFIs—short-term funding for long-term assets—heighten run vulnerability, potentially forcing fire sales that impact bank holdings. Interconnectedness creates contagion: one NBFI stress ripples to banks via funding or asset correlations.
Opacity obscures true exposures, leading to mispriced risks and surprise losses. High leverage in certain NBFI segments amplifies downturns, as seen historically. Regulatory arbitrage encourages migration to less-supervised areas, increasing systemic fragility.
In stress, banks may face higher defaults on NBFI-related loans or derivatives, eroding capital. Emerging market NBFI growth adds cross-border risks. Trust erosion could follow revelations of under-disclosed exposures, prompting withdrawals or tighter lending.
Opportunities
Prudent shadow banking linkages offer benefits. NBFIs diversify funding, supporting credit to underserved segments and enhancing efficiency. Securitization enables risk-sharing and capital optimization when transparent.
Improved transparency through enhanced reporting and data sharing strengthens oversight. Regulatory focus on leverage monitoring and interconnectedness mapping aids early detection. Banks adopting robust exposure frameworks access better terms and build resilience.
Innovation in NBFI supports economic growth, with banks partnering selectively for yield while managing risks. Reforms addressing data gaps foster healthier practices, positioning proactive institutions favorably.
Conclusion
In 2026, hidden leverage in banking through shadow banking and off-book activities will likely endure amid NBFI expansion, with interconnected exposures via securitization, funding, and private credit creating understated risks. While growth supports credit provision, challenges include liquidity mismatches, contagion, and opacity potentially leading to stress amplification. Opportunities lie in transparency gains, better monitoring, and prudent linkages enhancing efficiency.
Overall, 2026 reflects ongoing maturation where shadow activities complement banking but require vigilance. Beyond 2026, expect progressive integration through data improvements and policy measures, reducing hidden elements while preserving innovation. Balanced oversight—combining disclosure, interconnectedness analysis, and capital buffers—will distinguish resilient systems from those facing amplified vulnerabilities in a landscape where true leverage increasingly determines stability.
