Growing links between the bank and non-bank sectors pose a systemic risk, research published by the Federal Reserve Bank of New York finds.

Authors Viral Acharya, Nicola Cetorelli and Bruce Tuckman argue that the “entire system” is more fragile because of the interdependence.

“The asset portfolio values and sources of funding of each sector depend on the other,” the authors say. Banks support the growth of the non-bank sector through funding and liquidity insurance.

Bank and non-bank dependencies