Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

Abstract: The global non-bank sector has experienced significant growth since the global financial crisis, raising concerns that this shift represents a financial stability risk. We consider the drivers of this growth in Sweden: a small, open economy whose non-bank sector has grown rapidly. In contrast with the existing literature for the US, we find no evidence that growth in the Swedish non-bank sector is driven by regulatory arbitrage from banks. Instead, we find that the main drivers are the growing and increasingly complex pension investments, together with returns on global equity markets. While this provides some evidence that growth may be driven for search for yield, we also find that the non-bank sector appears to make its global investment choices on relatively conservative grounds. We conclude that trend-consistent growth may be driven by different factors depending on the jurisdiction. Our findings do not rule out financial stability risks, but further work is required to assess other channels by which these risks could propagate, including further analysis of cross border non-bank activities.

Keywords: non-bank financial institutions; cross-border capital flows; shadow banking; regulatory arbitrage

JEL-codes: F32; F41; F44; G15; G18; G22; G23; G28

Language: English

46 pages, February 1, 2025

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