The Role of Non-bank Financial Institutions in the Intermediation of Capital Flows to Emerging Markets

60 Pages Posted: 16 May 2022

Date Written: May 5, 2022

Abstract

This paper compares the behaviour of banks with that of non-bank financial institutions (NBFIs) in the intermediation of portfolio flows to emerging market economies (EMEs). Our analysis shows that investment funds, a key component of NBFIs, tend to reduce their exposure to EMEs more than banks during periods of financial turmoil, such as the Covid-19 pandemic. Moreover, passive funds and exchange-traded funds (ETFs) are more responsive to global shocks than active funds. Global funds show a lower elasticity to financial volatility than regional funds, while the behaviours of institutional and retail funds are quite similar. Regarding the currency composition of portfolio investments in EMEs, investment funds cut their assets denominated in USD in response to global shocks more than those in other currencies. Finally, the portfolio inflows to EMEs with a higher share of portfolio liabilities held by investment funds rather than by banks and other financial intermediaries tend to be more sensitive to the global financial cycle.

Keywords: financial intermediation, investment funds, emerging markets, capital flows, financial crisis

JEL Classification: F32, F36, G11, G15, G23

Suggested Citation

Moro, Alessandro and Schiavone, Alessandro, The Role of Non-bank Financial Institutions in the Intermediation of Capital Flows to Emerging Markets (May 5, 2022). Bank of Italy Temi di Discussione (Working Paper) No. 1367, Available at SSRN: https://ssrn.com/abstract=4110067 or http://dx.doi.org/10.2139/ssrn.4110067

Alessandro Moro (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Alessandro Schiavone

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
305
Abstract Views
756
rank
142,490
PlumX Metrics