Canadian banks’ loans to non-bank financial institutions have grown faster than total loans since the pandemic, RBC Capital Markets data shows. While the shift is less pronounced than in the U.S., analysts warn that the growing ties could introduce new risks into the financial system.

Non-bank financial intermediaries, or NBFIs, include pension funds, insurance companies, private credit firms, hedge funds and other investment funds that channel money through the financial system, according to the Bank of Canada. These institutions are typically less regulated than banks and tend to take on higher levels of risk, often lending to less profitable, more leveraged firms.  

The sector has expanded rapidly over the last decade. NBFIs held about $12.8 trillion in assets as of 2023, nearly double the $7.4 trillion held by Canadian banks, RBC Capital Markets analyst Darko Mihelic wrote in a client note. Altogether, they accounted for roughly 60 per cent of the $21.2 trillion in assets across Canada’s financial system. 

Exposure to non-bank financial firms varies across the Big Six. Bank of Montreal reported the largest share, with 10.8 per cent of its portfolio in the fourth quarter of 2025, followed by Royal Bank of Canada at 4.6 per cent and Bank of Nova Scotia at four per cent, according to Mihelic. In the U.S., BMO’s exposure stands at about 7.9 per cent.

On BMO’s fourth-quarter earnings call last year, chief risk officer Piyush Agrawal said loans to NBFIs represent a large and profitable segment of the bank’s business, adding that credit losses have historically been minimal. Over the past decade, the loss rate has been “about one basis point,” he said, describing the portfolio as “well-secured [and] well-structured.”

Étienne Dubuc, executive vice-president at National Bank, said on the lender’s earnings call that about 90 per cent of the bank’s NBFI clients are based in Canada and that it has only a “nominal exposure to U.S. private credit funds.” 

A string of recent high-profile U.S. corporate failures has rattled confidence in the asset class, triggering redemption freezes at some private credit funds as scrutiny grows over loan quality. 

TD, BMO and National Bank did not respond to The Logic’s request for comment on how they  view the risks and opportunities associated with lending to NBFIs. RBC, Scotiabank and CIBC deferred questions to the Canadian Bankers Association.

CBA spokesperson Ethan Teclu said in a statement that Canadian banks make their own lending decisions based on the “risk-reward of a transaction or relationship,” including with NBFIs, noting that those decisions are made in the context of strong access to funding, solid credit performance, high capital levels and ample liquidity in a highly regulated environment. He added that banks will continue to make “prudent decisions” with their clients, including NBFIs.

Bank of Canada data shows that as of the first quarter of 2025, large Canadian banks had roughly $1.3 trillion in exposure to “other investment funds.” That far exceeds their exposure to pension funds at about $400 billion, real estate finance vehicles at more than $200 billion and private equity and credit funds at more than $100 billion.

At a Global Risk Institute event last Wednesday, Bank of Canada governor Tiff Macklem said that while non-bank actors are a natural and important part of a healthy financial system, they are also more prone to periods of financial stress. 

“These new and rapidly growing players do bring vulnerabilities that need more attention,” he said at the event. “Risks may be growing faster than our ability to understand and mitigate them.”

Macklem also pointed to the growing role of private credit, which he said has been filling gaps in the financial system. “The issue is not private credit itself. It’s how private credit will behave under stress,” he said.

Still, lending to NBFIs has been growing faster than banks’ overall loans since the pandemic, according to Mihelic. From the second quarter of 2020 through the second quarter of 2025, Canadian banks’ non-mortgage loans to investment dealers and other financial institutions have risen about 115 per cent—more than double the roughly 45 per cent growth in total Big Six gross loans over the same period.

As of the first quarter of 2025, Canadian banks could also potentially lose about $545 billion if the asset managers they’ve lent money to defaulted, Mihelic wrote. Growth in banks’ lending to non-bank financial institutions has been significant and faster than most traditional forms of credit in North America, a trend that “could lead to concerns regarding an increasingly interconnected banking system,” he added. 

The sector’s rise has also reshaped financial markets. The market capitalization of Canadian NBFIs has grown more than 60 per cent since 2022, according to a report by Bank of Canada senior economist Javier Ojea-Ferreiro, while bank valuations have remained largely “flat,” rising only about two per cent over the same period.

U.S. bank lending to NBFIs, meanwhile, reached about US$1.2 trillion in June 2025—roughly 10 per cent of all bank lending, according to Mihelic’s research. 

The U.S. Federal Reserve warned last year that banks’ growing use of credit lines to NBFIs could create vulnerabilities because they can be drawn all at once during market stress, putting pressure on liquidity. 

Rachel Volynsky, former chief investment officer at Mercer and founder of RVSK Advisory, said the expansion of private credit has been even more pronounced in the U.S. because banks there have pulled back from lending. Canadian banks, in contrast, “haven’t retrenched from credit underwriting to the same degree” since they were “well-capitalized and weren’t forced by the regulator to retrench.”

While regulators have begun raising concerns about the risks posed by non-bank lenders, Volynsky said the current level of exposure in Canada does not yet resemble the kinds of vulnerabilities that triggered past financial crises.

“Investors will lose money, there’s no question, but I don’t see a systemic problem,” she said. The growth of non-bank lenders is something regulators should monitor but not something she “would miss sleep over.”