Sigurd Ulland

This is part of an ongoing educational series on nonbank financial institutions.

Hedge funds are a category of nonbank financial institutions (NBFIs) that play a significant role in the U.S. financial system. Since they transact in a wide range of asset classes and are major counterparties of the largest banks, their activities increasingly affect market liquidity, price discovery, and overall market functioning. In this article, we discuss the role of hedge funds in the U.S. financial system, their growth, and their relevance to the Federal Reserve’s monetary policy, prudential supervision, and financial stability objectives.

Kevin Henry

This is part of an ongoing educational series on nonbank financial institutions.
 
Mutual funds and exchange-traded funds, or ETFs, are important nonbank financial institutions (NBFIs) in the U.S. financial system. Both are widely accessible investment vehicles that can hold various kinds of assets. Combined, nearly 75 percent of mutual fund and ETF assets are stocks, about 20 percent are bonds, and the rest are commodities and other assets, according to Morningstar data through September. Mutual funds and ETFs are regulated by the Securities and Exchange Commission and are required to disclose information about their investment objectives, structures, and operations on a quarterly basis. This article details how mutual funds and ETFs differ, their recent growth, and their importance to the Federal Reserve’s objectives of monetary policy, prudential supervision, and financial stability. It does not cover money market mutual funds, which are a different type of NBFI.