BIS

Low Impact

BIS Working Paper: Sovereign-bank nexus increasingly includes NBFIs

Published

Jul 20, 2026

Topics

Financial stability, Non-bank financial intermediation, Sovereign risk, Bank risk management, Repo and collateral risk, Stress testing

Executive Summary

The Bank for International Settlements has published Working Paper No 1369, “The evolving nexus: sovereigns, banks and NBFIs”, dated July 2026. The paper is a research publication, not a rule, consultation or supervisory standard, and it does not introduce binding obligations, reporting changes or effective dates. Its regulatory intelligence value is strategic: the authors find evidence that the traditional sovereign-bank “doom loop” has broadened to include non-bank financial institutions. Using European bank-level data and global country-level data, the paper concludes that banks’ direct sovereign exposures have recently become less central in explaining bank-sovereign risk co-movement, while banks’ exposures to financial counterparties, particularly NBFIs, have become more important. The paper also finds that NBFIs’ sovereign debt holdings increasingly drive co-movement between NBFI and sovereign risk. For firms, the practical implication is to reassess financial stability monitoring, stress testing and counterparty-risk frameworks for sovereign debt, repo funding, collateral valuation, NBFI deposits and leveraged sovereign bond strategies, especially for exposures linked to riskier sovereign jurisdictions.

What Changed

newNew BIS research on the sovereign-bank-NBFI nexus

Financial stability analysis has often focused on direct bank holdings of sovereign debt and the two-way sovereign-bank feedback loop.

New

The paper argues that NBFIs should be incorporated into analysis of sovereign risk transmission because of their sovereign bond holdings and bank linkages.

modifiedRelative importance of direct bank sovereign exposures

Direct bank holdings of sovereign debt were a primary empirical channel for explaining sovereign-bank risk co-movement in the earlier sample period.

New

Post-2016, direct sovereign exposures are less central in the paper’s empirical results.

newNBFI channel in bank-sovereign risk transmission

NBFI exposures were not the main focus of the traditional sovereign-bank nexus literature.

New

Bank exposures to financial counterparties and NBFIs are presented as an increasingly important indirect sovereign-risk channel.

newNBFI-sovereign link evidenced through sovereign debt holdings

The sovereign-bank loop generally did not explicitly test the NBFI-sovereign side of the triangle.

New

The paper links NBFI risk to sovereign risk through NBFIs’ sovereign debt exposures.

newPolicy discussion, not binding measures

No policy measures are imposed by the Working Paper.

New

These are research-based policy implications and should not be treated as binding BIS regulation.

Business Impact

Who is affected

Directly affected

none; this BIS Working Paper does not impose regulatory requirements.

Indirectly affected

banks, broker-dealers, insurers, asset managers, hedge funds, pension funds, treasury functions, risk teams, liquidity risk teams, collateral management teams and regulatory affairs teams monitoring sovereign, repo and NBFI interconnectedness risks.

Jurisdictions

Global, European Union, Euro area, Advanced economies, Emerging market economies

Business processes

Sovereign risk monitoring, Counterparty credit risk management, NBFI exposure monitoring, Repo and securities financing risk management, Liquidity stress testing, Collateral valuation and haircut governance, ICAAP, ILAAP and recovery planning scenario design

Estimated effort

Low

Compliance risk

Medium

Affected Reports

Sovereign-bank-NBFI interconnectedness dashboard or risk committee packCounterparty sector exposure monitoring control for banks, financial institutions and NBFIsRepo, securities financing and collateral haircut stress testing controlLiquidity risk monitoring for NBFI deposits and wholesale funding dependenciesSovereign concentration and wrong-way risk assessment

Field	Validation rule

Recommended Actions

7 suggested next steps· derived from source analysis

1
AI generatedStep 1 of 7
Treat the publication as supervisory-relevant intelligence, not as a binding rule; record that there is no effective date or filing obligation.
2
AI generatedStep 2 of 7
Review whether internal stress scenarios capture triangular feedback among sovereign bond prices, NBFI deleveraging, repo margin calls and bank liquidity or counterparty losses.
3
AI generatedStep 3 of 7
Enhance risk dashboards to distinguish direct sovereign exposures from indirect sovereign risk through NBFIs and other financial counterparties.
4
AI generatedStep 4 of 7
Assess repo and securities financing exposures to leveraged NBFIs, including collateral sensitivity to sovereign spread shocks and haircut increases.
5
AI generatedStep 5 of 7
Review funding concentration from NBFIs, including the potential for deposit withdrawals or liquidity shocks during sovereign market stress.
6
AI generatedStep 6 of 7
Use the paper’s findings to challenge ICAAP, ILAAP, recovery planning and risk appetite assumptions for riskier sovereign jurisdictions.
7
AI generatedStep 7 of 7
Monitor follow-on publications from BIS, FSB and national supervisors for any movement from research findings to policy proposals on NBFI leverage, central clearing or repo haircuts.

Timeline

other

Date not specified

The paper uses 2016Q1 as the start of the later empirical window when assessing changes in sovereign-bank and NBFI-related risk transmission.

other

Date not specified

The European bank-level exposure dataset compiled in the paper runs to 2024Q2.

other

Date not specified

The country-level BIS consolidated banking statistics sample used in the paper runs to 2025Q2.

publication

Jul 14, 2026

Version date shown in the Working Paper text.

publication

Jul 2026

BIS Working Paper No 1369 published in July 2026.

Sources

AI-generated analysis is based on the following primary sources. Always verify against the official publication.

Working paperBank for International SettlementsJul 2026
BIS Working Papers No 1369: The evolving nexus: sovereigns, banks and NBFIs ↗
https://www.bis.org/publications/working-paper-1369-evolving-nexus-sovereigns-banks-and-nbfis.pdf
Annual Economic ReportBank for International SettlementsJun 2025
Annual Economic Report 2025: Financial conditions in a changing global financial system ↗
https://www.bis.org/publ/arpdf/ar2025e.pdf
Monitoring reportFinancial Stability BoardDec 16, 2024
Global Monitoring Report on Non-Bank Financial Intermediation 2024 ↗
https://www.fsb.org/2024/12/global-monitoring-report-on-non-bank-financial-intermediation-2024/
BIS Quarterly Review articleBank for International SettlementsSep 2019
Non-bank counterparties in international banking ↗
https://www.bis.org/publ/qtrpdf/r_qt1909c.htm
BIS Quarterly Review articleBank for International SettlementsMar 2023
Covid, central banks and the bank-sovereign nexus ↗
https://www.bis.org/publ/qtrpdf/r_qt2303b.htm

Related Evidence

Verified source support for this analysis

The evidence agent checks whether the drafted finding is supported by official publications and relevant public source material.

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