Description

This paper examines how three core financial functions, that is, credit provision, savings mobilisation and risk-absorption capacity, are allocated across banks and non-bank financial institutions (NBFIs). Using supervisory data for Brazil spanning 2000 to 2023, we examine how banking-sector balance-sheet constraints, non-bank sector dynamics and macro-financial conditions shape the migration of financial function across sectors. We find that NBFIs play a persistently large role in savings mobilisation, an increasing role in risk-absorption capacity and a more conditional role in credit provision. Once functional shares are adjusted for sectors’ systemic relevance, migration of financial activity toward NBFIs is most evident in credit provision and is strongly associated with banking-sector capitalisation, the credit-to-capital ratio (credit intensity), and the provisions-to-credit ratio (provisioning intensity), particularly in low-capital regimes. Complementary bank-level evidence further shows that the relationship between capitalisation and credit intensity is nonlinear and strongest among relatively weakly capitalised banks, while an event study around the introduction of Basel III provides additional evidence consistent with a bank balance-sheet channel. By contrast, the allocation of savings-mobilisation and risk-absorption-capacity functions across institutions is more persistent and less responsive to short-run balance-sheet and macro-financial conditions. Overall, the results show that growth in NBFI activity does not translate mechanically into a proportional increase in their systemic importance, which supports a function-based perspective on macroprudential surveillance.