Regulatory Perimeters and Their Discontents: Reflections from IFABS London 2026

I recently had the privilege of attending the IFABS (International Finance and Banking Society) 2026 Annual Conference at Bayes Business School, City St George's, University of London. Three days of dense, high-quality engagement with scholars, central bankers, and policy practitioners left me with far more questions than answers - which, I suspect, is exactly what a good conference is supposed to do. I was also honoured to receive the Third Prize for Best PhD Paper, awarded jointly by the Bank of England and IFABS - a recognition I'm genuinely grateful for, and one that made the rest of the conference's ideas land even more personally. I want to thank IFABS for curating such a rich programme, and FMND for making the opportunity possible. What follows is an attempt to organise my notes into something coherent, and to think through one question that has stayed with me since: as regulators tighten the perimeter around banks, are we actually reducing systemic risk, or simply relocating it to a less visible address?

Photo credit: Karen Hatch Photography (karenhatchphotography.com)

The keynotes and panels

Keynote 1 belonged to Prof. Xavier Vives (Professor Emeritus of Economics and Finance at IESE Business School, and a member of the Advisory Scientific Committee of the European Systemic Risk Board at the European Central Bank), delivered online on "Disruption in Finance: AI and Digital Money" and chaired by Barbara Casu, Deputy Dean of Bayes Business School and IFABS 2026 London Conference Co-Chair. Vives framed competition and stability in banking not as opposing forces but as a relationship that shifts with market structure and technology - and applied that lens directly to the current wave of AI and digital-money disruption, where the same question resurfaces in a new guise: does technological change widen the perimeter of who can safely intermediate credit and payments, or does it concentrate fragility in fewer, larger, less transparent nodes? It's a framing that matters more than it might first appear: much of the discussion later in the conference, on where credit intermediation migrates once banks are regulated more tightly, is really a competition-and-market-structure question wearing prudential clothing. The FCA-endorsed sessions, chaired by David Stallibrass, Deputy Chief Economist at the FCA, brought a conduct-and-markets lens that complemented the more prudentially-focused sessions elsewhere in the programme, and were a useful reminder that stability and conduct regulation, while institutionally separate in the UK's twin-peaks model, are constantly talking to each other in practice.

Keynote 2 was Dr David Bailey, Executive Director for Prudential Policy at the Bank of England, on "The Role of Research in Prudential Regulation," chaired by Dr Eddie Gerba of the London School of Economics and Political Science, formerly of the Bank of England and an IFABS 2026 Conference Co-Chair. (The full speech is available via the conference organisers' LinkedIn post: https://lnkd.in/euijU-Zv.) Bailey's argument, as I understood it, was that prudential policy increasingly has to be built on evidence rather than doctrine - those Basel-era priors need continuous stress-testing against new data, new business models, and new failure modes, rather than being treated as settled wisdom. Dr Arthur Kotlicki of the Bank of England followed with a policy panel that pushed further into how research infrastructure inside central banks actually gets translated into supervisory practice - a question that sounds mundane until you realise how much financial stability policy still runs on judgement calls made under time pressure.

Nicola Cetorelli and the "transformation view" of banks and NBFIs

Keynote 3 — the one that has stayed with me the longest - was Dr Nicola Cetorelli, Head of Financial Intermediation at the Federal Reserve Bank of New York, on "Regulation and the Boundaries of the Banking Firm," chaired by Sonia Falconieri. He drew heavily on a body of work with Viral Acharya and Bruce Tuckman - most visibly the NBER paper "Where Do Banks End and NBFIs Begin?" - that reframes how we should think about the growth of non-bank financial intermediaries (NBFIs) relative to banks over the last decade.

The paper's contribution is to reject two competing stories that dominate the policy conversation. The first, which I'll call the "parallel view," is the traditional US regulatory logic behind Glass-Steagall and the Volcker Rule: banks and NBFIs do fundamentally different things, banks take deposits and sit inside the safety net, NBFIs are capital-markets players that can be left to fail. The second, the "substitution view," is the classic shadow-banking narrative: activity has simply migrated out of heavily-regulated banks into lightly-regulated NBFIs, so the policy fix is to regulate similar activities similarly - the so-called congruence principle.

Cetorelli, Acharya and Tuckman argue neither view is right. Banking and NBFI activity hasn't separated or migrated so much as been re-sliced: the routine, front-end piece of an activity - originating a loan, running a fund, holding an asset - moves to the NBFI, but the funding and liquidity backstop for that activity stays with banks, through warehouse lines, subscription facilities, repo, and contingent credit lines. A mortgage originated by a non-bank, a private-credit loan made by a fund, a CLO - all of it still leans on bank balance sheets the moment things get stressed. They document this using US flow-of-funds "from whom to whom" data showing NBFIs are heavily liability-dependent on banks, a set of case studies, and evidence that bank–NBFI systemic-risk correlations have risen sharply since the global financial crisis. Their policy conclusion is pointed: NBFIs are formally outside the safety net but functionally inside it, because banks fund them and get pulled into their distress anyway, so regulators should stop treating the NBFI perimeter as a clean boundary and instead supervise the bank–NBFI nexus holistically.

Sitting with that thesis, next to a morning spent on David Bailey's account of evidence-based prudential policy, sharpened the question I've been chewing on since: if the "transformation view" is right - if tightening the regulatory screws on banks doesn't relocate risk so much as re-slice it, leaving banks still exposed through the back door of credit lines and funding relationships - then how much of the reassurance we take from a shrinking bank perimeter is actually earned?

Thinking this through for India

I want to be careful here, because the honest answer depends enormously on structure, and the structure of non-bank intermediation in India is genuinely different from the US or UK. The Acharya-Cetorelli-Tuckman NBFI universe includes broker-dealers, money market funds, insurers, private-credit funds, mortgage REITs, and CLOs - an economy where NBFIs collectively exceed banks in total financial assets. India has almost none of that market-based shadow-banking machinery at scale. What India has instead is NBFCs (Non-Banking Financial Companies) that are, structurally, still credit intermediaries themselves - balance-sheet lenders in housing finance, infrastructure finance, vehicle and consumer finance, and microfinance - funded through bank term loans, commercial paper, and non-convertible debentures rather than through deep capital markets. Banks remain the dominant credit channel in India by a wide margin; that alone should make us cautious about importing the US paper's conclusions wholesale.

The IL&FS default of 2018 is the reference case, and it's worth being precise about the transmission mechanism rather than treating it as a generic "shadow bank runs out of money" story. IL&FS was a systemically important, non-deposit-taking Core Investment Company, highly leveraged (debt-to-equity around 18.7:1 by 2018), rated AAA until just weeks before it collapsed into default, and funded through short-term commercial paper and inter-corporate deposits to finance long-gestation infrastructure assets - a maturity mismatch dressed up as a stable, highly-rated credit. But the acute contagion channel in 2018 was less "banks funded it directly and got hit" and more that mutual funds and other NBFCs simply stopped rolling over commercial paper and bonds to the entire NBFC and housing-finance sector, freezing wholesale market funding system-wide. That's a classic capital-markets funding panic, distinct from - though related to - the bank-credit-line channel that Acharya, Cetorelli and Tuckman emphasise for the US.

Where their bank-dependency channel is very much alive in India is on the liability side over the medium term: bank term loans and working-capital lines to NBFCs and housing-finance companies are a large and growing share of NBFC funding, alongside bond and commercial-paper issuance and, since 2019, growing co-lending arrangements with banks. So the two-way propagation the paper describes - NBFC stress hitting bank asset quality, and bank funding tightening hitting NBFC liquidity - is directly relevant to India, even if the acute 2018 shock ran mostly through capital markets rather than bank credit lines.

RBI's regulatory response, whether or not it drew on this literature, has followed almost exactly the "transformation view" playbook. Since 2019 the RBI has moved from a fairly light-touch NBFC regime toward Scale-Based Regulation - a four-layer, risk-graded framework effective from October 2022 and consolidated into a single Master Direction in October 2023 -that applies bank-like prudential norms on capital, governance, large-exposure limits, and listing requirements to the largest, most systemically important NBFCs in the "Upper Layer." In November 2023, the RBI went further and targeted the bank-to-NBFC funding channel directly, raising risk weights on bank exposures to NBFCs and on unsecured consumer credit, explicitly citing NBFCs' rising dependence on bank borrowing as the justification - effectively acting on the same liability-dependency logic the NBER paper documents for the US. That risk-weight increase was partly rolled back in April 2025 as growth concerns eased, and in the interim, funding to NBFCs through mutual funds and the corporate-bond market grew as a substitute channel - a live, real-time illustration of the transformation thesis: tighten the bank channel and financing migrates toward capital markets rather than disappearing, exactly as the theory predicts. Notably, the RBI carved out microfinance and self-help-group lending from the November 2023 tightening and reinstated that carve-out on the later easing, a genuinely India-specific wrinkle: financial-inclusion mandates get explicitly weighed against systemic-risk tightening in a way that has no real analogue in the US or UK debates this paper is engaging with.

A few other structural features are worth flagging because they cut against a straightforward transplant of the US framework. Several of India's largest NBFCs and housing-finance companies have historically been bank-group or industrial-house affiliates rather than independent institutional players - HDFC Limited and HDFC Bank being the largest recent example, a case where the "which is bank, which is shadow bank" question was resolved by outright merger in 2023 rather than by regulatory redefinition. That creates intra-group contagion channels closer to the opaque-group-structure problem that actually characterised IL&FS than to the diversified, arm's-length NBFI ownership the US paper describes. A subset of Indian NBFCs also still take public deposits, which the RBI has always regulated more like banks - adding a consumer-protection dimension largely absent from a US NBFI universe that is almost entirely non-deposit-taking. And loan securitisation from NBFCs to banks in India is partly driven by priority-sector-lending targets rather than pure yield-seeking, a regulatory-arbitrage-adjacent motive with no clean US counterpart.

Where I land, tentatively

On the specific question I keep circling - should emerging-market regulators formalise fintech–NBFC–bank hybrids into a single digital-bank regulatory tier, or does the IL&FS experience argue for strict, rigid separation - I don't think the Indian evidence supports either pole cleanly, and the transformation-view lens makes me more confident of that, not less. IL&FS argues against unsupervised proliferation of large, systemically interconnected NBFCs funded on fragile wholesale liabilities; it does not obviously argue against integration per se. A single regulatory tier that ignores genuine differences in liability structure, deposit access, and resolution regimes between banks and non-banks risks importing bank-style implicit-guarantee expectations onto entities that carry neither deposit insurance nor lender-of-last-resort access - arguably worse than the status quo. But rigid separation, if it simply pushes maturity-transforming credit activity into unsupervised corners while leaving the bank-NBFC funding channel itself unmonitored, reproduces the 2018 failure mode almost exactly, since - as the transformation view would predict - the risk was never actually outside the banking system to begin with.

The RBI's scale-based, activity-proportionate approach - tightening prudential requirements on systemically important NBFCs and on the specific bank-NBFC lending nexus, without fully collapsing the bank/non-bank distinction - looks like the more defensible middle path on the evidence so far, though its resilience hasn't yet been tested by a genuine stress episode the way the pre-2018 framework was. The more useful research agenda, to my mind, isn't "unify or separate" as a binary choice, but building an Indian equivalent of the "from whom to whom" flow-of-funds matrix the NBER paper constructs for the US, so that bank–NBFC interdependence can actually be measured rather than inferred after the fact from the next crisis.

None of this is settled in my own thinking, and that's really the value of a conference like IFABS: it hands you frameworks sharp enough to unsettle your own assumptions. Thank you again to IFABS and the Bank of England for the Third Prize for Best PhD Paper, to IFABS for the platform, and to FMND for the opportunity to attend.