Report on financial structures

The euro area financial sector - overview and interconnectedness

The ECB Report on financial structures (RFS) in the euro area reviews the main structural features of and developments in the broader euro area financial sector. The RFS has a clear structural focus, serving as a complement to the semi-annual ECB Financial Stability Review (FSR), which focuses more on cyclical factors.

The RFS covers the banking sector (monetary financial institutions, or MFIs), insurance corporations and pension funds (ICPFs) and other financial intermediaries (OFIs). Parts of the OFI sector have grown substantially over the past decade and sometimes perform bank-like functions. This calls for a more holistic approach to the structure of the euro area financial sector going forward.

Chapter 1 presents the evolution of the overall structure and composition of the financial sector. It also discusses its role in financing non-financial corporations (NFCs) and analyses interconnectedness across different parts of the financial sector in order to assess possible structural risks to financial stability.

The analysis shows that the size of the euro area financial sector relative to GDP increased between 2008 and 2016 (from 5.3 to about 6.4 times GDP), although the ratio remained broadly unchanged in 2016 compared with the previous year. It also highlights that the relative importance of non-banks (ICPFs, MMFs and OFIs) in the euro area financial sector has grown steadily since the onset of the financial crisis, in particular on the back of the significant expansion of the OFI sector, but this trend appears to have paused recently. In terms of total assets, the share of the non-bank financial sector increased from 43% in 2008 to 55% in early 2017. A corresponding decline initially took place in the share of monetary financial institutions (MFIs), but that trend came to a halt recently, with the share of MFI total assets (excluding MMFs) remaining broadly unchanged, at around 45%, in 2016 and early 2017.

Turning to interconnectedness, Chapter 1 also looks at direct exposures between various parts of the euro area financial sector by instrument type. MFIs remain the largest lenders, followed by OFIs. MFIs are also the largest borrower sector. Meanwhile, for debt securities issued by financial institutions, MFIs are both the largest holders and the largest issuers. Looking at investment fund shares, ICPFs and OFIs are the largest holders, while OFIs are the major issuers of this instrument.

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