The FDIC is sounding an alarm on the increasing exposure of banks to non-depository financial institutions (NDFIs). The rise of lending to these entities, which include mortgage and insurance companies, real estate investment trusts (REITs), private equity (PE) firms and hedge funds, has seen a significant uptick in recent years. While these loans offer potential opportunities, they also bring heightened risks that regulators expect financial institutions to address.
Regulatory reporting requirements: What’s changed?
Banks must adhere to stricter reporting protocols for loans to NDFIs for reports filed in the first quarter of 2025. The following are key aspects of the updated requirements:
1. Granular loan categorization
Banks will now classify loans in accordance with specific NDFI subcategories, such as:
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- Mortgage credit intermediaries
- Business credit intermediaries
- Private equity funds
- Consumer credit intermediaries
- Broker-dealers
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2. Standardized reporting
Banks with $10 billion or more in assets must report detailed exposure by NDFI category, enabling regulators and investors to better understand underlying risks.
How we can help
Whether you’re currently navigating the updated requirements or may need to comply with them in the future, our team can assist by:
Reviewing loan classifications
Ensuring accurate categorization of NDFI loans to comply with the updated reporting standards.
Validating risk calculations
Analyzing the risk profiles of NDFI exposures to align with regulatory expectations.
Strategic risk assessment
Helping you identify potential vulnerabilities and implement strategies to mitigate them before they impact your bottom line.
The need for rigorous loan classification and risk calculation has become more urgent, as underscored by the reporting changes, which may also signal the potential for additional regulatory requirements in the future—particularly as the Financial Stability Oversight Council (FSOC) closely monitors the private credit and NDFI sectors.
The risks: Why pay attention
For banks and their clients, the implications of these changes go beyond regulatory compliance. The increased focus on NDFIs reflects growing concerns about systemic risks that could ripple across financial markets. Key risks include:
Credit quality concerns
NDFI loans often exhibit higher default probabilities due to leverage and market volatility.
Reputational risks
Enhanced scrutiny on banks’ lending practices may expose weaknesses in risk management frameworks, including problematic data management practices.
Regulatory fallout
As regulators push for greater transparency, non-compliance or mismanagement of NDFI risks could result in penalties and regulatory scrutiny.
The bottom line: Act now
As competition for lending opportunities intensifies, banks must balance the pursuit of growth with the need to safeguard against emerging risks. The FDIC’s new reporting requirements represent a critical opportunity to reassess your exposure to NDFIs and take proactive steps to manage lending risks. Even banks not currently affected by the new requirements may want to learn more and possibly adopt some practices, especially if they anticipate crossing the $10 billion threshold.
Whether you need support with compliance, risk management, loan analysis, data management or project management to meet these new requirements, we can partner with you to help ensure compliance and resilience.
Learn more about our highly regarded Banking & Financial Services practice.
About the Author
Amanda Hofstetter brings a wealth of expertise to our clients, with over 30 years of experience in internal audit, SOX compliance and risk assessment. Her experience spans numerous areas of banking and financial services, including loan accounting, commercial loan servicing, auto finance, default mortgage and SBA. Amanda’s deep industry expertise helps clients realize significant improvements in their risk management, compliance and servicing practices.
To learn more, contact Amanda at ahofstetter@solomonedwards.com.
