Global financial stability risks have increased significantly, driven by tighter global financial conditions and heightened trade and geopolitical uncertainty.
Against the heightened volatility of asset prices, Chapter 1 assesses that global financial stability risks have increased significantly. This assessment is supported by three key forward-looking vulnerabilities: (i) valuations remain high in some key markets; (ii) some highly leveraged financial institutions and their nexus with banking systems; and (iii) risks of market turmoil and challenges to debt sustainability for highly indebted sovereigns.
Chapter 2 shows that major geopolitical risk events can trigger a significant decline in stock prices and raise sovereign risk premiums, thereby posing a potential threat to macro-financial stability.