Manuel Gloria and Chiara Punzo
The expansion of non-bank financial institutions (NBFIs) is transforming the financial landscape and introducing fresh challenges for financial stability and oversight at the same time as creating opportunities. Using a dynamic stochastic general equilibrium (DSGE) model, we find that while NBFIs may enhance long-term welfare for households and entrepreneurs in norma...
The strongest version of this narrative acknowledges a critical paradox in modern finance: NBFIs introduce efficiency gains in normal times but exacerbate systemic risks during crises. The authors deserve credit for using a rigorous DSGE model to quantify this trade-off, providing policymakers with actionable insights. However, the analysis also reveals a potential blind spot—while the model accounts for asymmetric capital requirements for banks, it simplifies NBFIs' behavior by assuming they op...