Systemic stability
Systemic stability is the capacity of the financial system to keep providing credit, payments, insurance and market functions when it is hit by a shock. This page sets out how The Global Risks Alliance (GRA) examines the channels that threaten it: contagion between institutions, liquidity stress, the growth of nonbank financial intermediation and macroeconomic shocks that start in the real economy. It is part of financial-system risk, with its research on financial stability analysis.
- 01InstitutionThe Global Risks Alliance (GRA)
- 02Service levelR0: information and enquiries
- 03In briefThe short answer
- 04ChannelsFour ways a local loss becomes systemic
- 05FrameHow authorities test system-wide resilience
- 06Compound shocksWhy the joint event is the stress that matters
- 07AmplifiersWhat turns a shock into a crisis
GRA · Institution · service level R0
The short answer.
Systemic stability is the capacity of the financial system to keep providing credit, payments, insurance and market functions when hit by a shock. GRA examines the channels that threaten it: contagion between institutions, liquidity stress, the growth of nonbank financial intermediation and macroeconomic shocks that start in the real economy, especially in compound cases.
Settlement dependencies, and what fails with a node.
How a failure at one financial centre can spread through settlement links. Design links, not real dependencies.
Four ways a local loss becomes systemic.
Direct and indirect links
Losses travel through interbank exposures, common holdings and shared counterparties. Fire sales by one institution reprice assets held by many.
Funding stress
Margin calls, deposit withdrawals and redemptions force institutions to raise cash quickly, often by selling into a falling market.
Nonbank intermediation
Funds, insurers, pension schemes and private credit vehicles now carry more of the system's credit and liquidity risk, with different rules and less visibility.
Real-economy shocks
Hazards, pandemics, energy disruption and trade breaks reach balance sheets through defaults, claims and repricing at the same time.
How authorities test system-wide resilience.
| Instrument | Body | What it adds |
|---|---|---|
| Nonbank leverage recommendations (July 2025) | FSB | Monitoring of leveraged nonbanks, counterparty credit risk management by bank lenders and cross-border cooperation |
| Key Attributes of Effective Resolution Regimes | FSB | How failing institutions are resolved without taxpayer support or disorderly contagion |
| NGFS short-term scenarios (May 2025) | NGFS | Five-year horizon scenarios combining physical and transition shocks with macro-financial effects |
| System-wide exploratory exercises | Central banks, for example the Bank of England system-wide exploratory scenario | How banks and nonbanks interact under stress |
Why the joint event is the stress that matters.
Most stress tests apply one shock at a time. Losses that threaten stability come from joint events: a hurricane that damages collateral, triggers insurance claims, disrupts a payment hub and lowers sovereign revenue in the same quarter. GRA's scenario design describes such joint events with stated dependence between hazards, sectors and markets, and records what each sector's evidence can and cannot show. Methods continue at Financial Stability; compound hazard science at GCRI compound hazards.
What turns a shock into a crisis.
- Leverage, which magnifies losses relative to capital
- Maturity and liquidity mismatch, which turns doubt into a run
- Concentration on the same assets, models or service providers
- Opacity, which makes counterparties withdraw from everyone when they cannot tell who is exposed
- Procyclical rules and behaviour that tighten conditions as the shock unfolds
Compound shocks are the gap.
Most stress tests examine one shock at a time. GRA's interest is the compound case: a physical event, an operational failure and a market move arriving together, and the dependencies that link them.
- 01
Map dependencies
Identify which institutions share exposures, providers and funding sources, using aggregated data so that no individual firm can be identified.
- 02
Frame scenarios
Combine physical, operational and economic shocks with stated assumptions. See scenarios and stress testing.
- 03
Record limits
State what was not tested, which data was missing and where results depend on assumptions.
Scenario evidence is never a supervisory stress test, a capital requirement or a forecast of loss. Supervisors decide what, if anything, to use.
Where stability work sits across the Consortium.
A proposed specialist community, Financial Stability, is in development and not yet open. The sector methods of network contagion and scenario mathematics are described in the STEM Commons stewarded by The Global Centre for Risk and Innovation (GCRI), including network science and contagion. Related channels: sovereign and fiscal exposures and geoeconomic and trade transmission.
Terms used on this page.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Contagion | Transmission of losses or stress from one institution or market to others. |
| Non-bank financial intermediation | Credit and investment activity outside the banking system, by funds, insurers and others. |
| Liquidity spiral | A feedback in which falling prices raise margins and force sales that push prices down further. |
| Macroprudential policy | Policy that aims to keep the financial system as a whole resilient by limiting system-wide risk. |
Where this page's references lead.
The bodies and documents this page is read against. Status and editions change; each link goes to the issuing body.
Questions and answers.
Does GRA supervise or monitor institutions?
Does GRA publish early-warning signals for markets?
Can supervisors take part?
How is firm data protected?
Around GRA.
Start with an enquiry.
The current service level is R0: information and enquiries. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.