GRA · Financial Stability
Spatial financeWhere capital meets hazard, exposure and transition
Real economy feedback
Financial stress matters because it reaches people and firms: credit becomes scarce or expensive, investment and hiring fall, and asset values drop. The real economy then feeds back: recessions raise defaults, which weaken lenders further. This page sets out how financial and real shocks reinforce each other, how the feedback is measured, and which authorities and boards decide.
How the work runs.
Systemic risk dashboard
Real economy feedback · Financial system · Committee meeting 1
Vulnerabilities heat map
percentile vs history, 0 to 100
Exposure network
red: most connected node
Credit-to-GDP gap
Fig.Systemic risk dashboard: example names and illustrative values, not a record or a live system.
Real economy feedback: how the risk develops.
Risk transmission to jobs, services and public finance. The dossier below sets out how the risk develops, what is measured, where the data come from, how it is modelled and who decides.
Credit supply contracts
Banks short of capital or funding cut lending. Small firms and households with few alternatives are hit hardest, reducing spending and investment.
Collateral values fall
Falling property and asset prices cut what borrowers can pledge, reducing credit further. Collateral constraints amplify both booms and busts.
Defaults return to lenders
Recessions raise unemployment and business failures, which raise loan losses. Weaker lenders tighten credit again.
Sovereign and bank loop
Banks hold their government's debt, and governments stand behind their banks. Stress in either can spread to the other.
A loan book under scenario families.
How physical and transition risk could reach a loan book under different scenarios. Illustrative design values.
What is measured, and how well.
Each indicator carries its unit, its cadence, the kind of source behind it and the evidence label a value would carry. No values are shown: a programme supplies them under its own authority.
| Indicator | Unit | Cadence | Source type | Label |
|---|---|---|---|---|
| Credit-to-GDP gap | percentage points | quarterly | BIS credit statistics | ESTIMATED |
| Bank lending standards | net share of banks tightening | quarterly | Bank lending surveys | REPORTED |
| Non-performing loan ratio | percent of gross loans | quarterly | Supervisory data | Published statistics |
| Household debt service ratio | percent of disposable income | quarterly | BIS statistics | ESTIMATED |
| Growth-at-risk | lower percentile of projected GDP growth, percent | periodic | IMF and central bank models | MODELLED |
| Bank holdings of domestic sovereign debt | share of assets | quarterly | Supervisory data | Published statistics |
Trace a shock in real economy feedback to the balance sheet.
Assembled from the Nexus Standards area profile Financial stability and prudential risk: the shocks it names, the systems and sectors that carry the loss, the controls that dampen it and the data that observe it. Pick an initiating shock and step through the cascade to see which exposures it reaches and where losses could concentrate. The Map view places the run on an example geography with open data. Every weight is a stated assumption. An exercise, not a forecast, a valuation, a rating or investment advice. To model a place of your own choosing, open the full System Builder.
Hazards
- Dam failure
- River flood (set off downstream)
- Flash flood (set off downstream)
- Mass displacement (set off downstream)
- Widespread power outage (set off downstream)
- Water supply shortfall (set off downstream)
Systems and couplings
Controls
NS-0Constitution and principlesNS-3Risk record UNIs (grammar, legacy crosswalk, allocation authority)NS-9Contextual UNIs (deployments, instances, programme instances)NS-10Policies and clauses (machine-readable obligations: definition, binding, evaluation and enforcement)NS-11Verification and monitoring (evidence, attestations, zero-trust conformance observation)NS-14Conformance and crosswalk to external standardsNRS-H62Hazard family: Compound and multi-hazard events (NHS-1 sys.compound)NRS-H113Hazard family: Financial-system fragility (NHS-1 soc.financial-system)NRS-H118Hazard family: Organised crime and illicit economies (NHS-1 soc.crime)NRS-H79Hazard family: Mental health crises (NHS-1 health.mental)NRS-U9Universe platform profile: Financial Regulation NexusNRS-C5Scenarios and stress testing
Observation
- BIS Data Portal (credit, debt service, property prices, banking statistics) (listed for reference)
- IMF data services (WEO, IFS, FSI via SDMX) (listed for reference)
- OECD Data Explorer (SDMX API) (listed for reference)
- Financial Soundness Indicators
- Macroeconomic Dashboard
Example geography
- Western Europe: 152 hexagonal cells
- Night lights tonight, outages (VIIRS Day/Night Band), NASA GIBS
- Surface water through cloud, 30 m (OPERA DSWx-S1 radar), NASA GIBS
- Rain rate, last half hour (IMERG), NASA GIBS
- Surface soil moisture (SMAP), NASA GIBS
Where the evidence comes from.
Named public datasets and institutional records, each with its licence class. Sources by agreement are used only under their terms and never republished.
| Source | What it gives | Licence class |
|---|---|---|
| BIS credit and debt service statistics | Credit-to-GDP gaps and debt service ratios | Free, BIS terms |
| ECB bank lending survey and Federal Reserve senior loan officer survey | Lending standards and demand | Free, ECB terms; public domain |
| IMF Global Financial Stability Report growth-at-risk analysis | Downside risks to growth from financial conditions | Free, IMF terms |
| World Bank Financial Structure Database | Financial depth and structure by country | CC BY 4.0 |
| National statistics offices | Output, employment and insolvency data | Public, terms per office |
What real economy feedback means for exposure, loss and capital.
The exposure, loss, scenario and capital views a risk officer, supervisor or ministry of finance would ask for, with the frameworks they report against. Structures follow supervisory and actuarial practice. Values are illustrative: never prices, ratings or advice.
Transmission channels
How a shock in real economy feedback reaches credit, market, underwriting, liquidity and operational risk, and feeds back.
Who decides, and what the evidence serves.
Financial Stability prepares evidence. The decisions below are taken by the authorities named, under their own rules, and never by the platform.
| Who decides | The question | Evidence this page serves |
|---|---|---|
| Macroprudential authorities | When to build or release countercyclical buffers | Credit gaps, lending standards and growth-at-risk |
| Central banks | How monetary policy interacts with financial conditions | Financial conditions and credit evidence |
| Finance ministries | Whether to support credit through guarantees or programmes | Credit supply evidence and evaluations of past schemes |
| Bank boards | How to manage lending through the cycle | Credit quality trends and stress results |
Outputs this topic produces
- Guide to macro-financial feedback loops
- Method note on growth-at-risk and its interpretation
- Brief on the bank-sovereign loop
- Questions for macroprudential authorities on buffer release
Shared questions the industry asks.
- 01
How does credit stress affect the economy?
How reduced lending affects investment, hiring and consumption.
- 02
How do public finances get involved?
How bank support, lost revenue and automatic stabilisers affect government budgets.
- 03
What is the bank-sovereign loop?
How banks' holdings of government debt and governments' support for banks link their fortunes.
- 04
Who bears the costs?
How losses are distributed across households, firms and taxpayers.
How the risk arises and transmits.
Credit is an input to most economic activity. When banks and other lenders pull back, firms delay investment and hiring, households cut spending and unemployment rises, especially among small firms and lower-income households.
Financial crises are associated with deeper and longer recessions than other downturns, because balance sheet repair takes time and credit recovers slowly.
Public finances are drawn in through bank support, deposit protection, lower tax revenue and higher social spending. Large fiscal costs can raise sovereign risk.
The bank-sovereign loop links the two. Banks often hold large amounts of their own government's debt; if sovereign risk rises, bank capital falls, and if banks need support, sovereign risk rises.
Real-system shocks, such as disasters and pandemics, can start the loop from the real economy side, hitting incomes, defaults and public budgets simultaneously.
How evidence is gathered, and where it stops.
| Method or data | What it shows | Its limit |
|---|---|---|
| Macro-financial models | Interaction of finance and economy | Simplified behaviour |
| Credit and output data | Co-movement of credit and activity | Causality is contested |
| Fiscal analysis | Costs of crises to budgets | Accounting differs across countries |
| Distributional studies | Who bears crisis costs | Data on households is limited |
How it is studied, and what the methods cannot say.
- 01EconometricsEarly warning indicators · Quantile regression for growth-at-risk · Spillover estimationApplied here
- 02Financial economics and macro-financeRun incentives in funds and banks · Leverage cycles · Implicit guaranteesApplied here
- 03Complex systems and agent-based modellingAgent-based market models · Early warning of regime shifts · Feedback loop mappingApplied here
- 04Scenario design and stress testingMacro-financial scenario design · System-wide exercises · Reverse stress testsApplied here
Questions and answers.
What is the credit-to-GDP gap?
What is growth-at-risk?
What is the bank-sovereign loop?
Does GRA recommend fiscal or monetary responses?
Why do financial crises cause longer recessions?
What is a contingent liability?
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