The Global Risks Alliance (GRA)
A financial crisis moves in stages: a shock hits, vulnerabilities amplify it, stress spreads across institutions and markets, and the damage returns to the real economy, which feeds back into finance. Real-system shocks such as disasters, pandemics, energy disruptions and cyber incidents can start the sequence as surely as financial ones. This page shows how vulnerabilities propagate, as studied on Financial Stability by The Global Risks Alliance (GRA).
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For financial-system transmission, in GRA's spatial-finance reading, the map opens on population density and night lights with built-up and settlement extent from NASA GIBS, framed on World; 3 further NASA layers wait in the list.Satellite and model products as NASA publishes them, each with its own date; indicators, not assessments of any place; claim ceiling INTEGRATED.
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GeographyFor financial-system transmission, in GRA's spatial-finance reading, the map opens on population density and night lights with built-up and settlement extent from NASA GIBS, framed on World; 3 further NASA layers wait in the list.
Risk transmission in Financial Stability is the path by which physical, transition, technology and systemic shocks reach the sector and travel onward through balance sheets, markets and the real economy. Analysis uses aggregated, sector-level indicators such as interbank exposures and g-SIB interconnectedness score; it assesses no individual firm and is not investment advice.
Fig.How GCRI, GRF and GRA share one field while the authorities decide. Design, not a record.
The working screen behind this subject: its structure, terms and states. Names are placeholders and values illustrative.
A real or financial event causes losses or uncertainty: a disaster, a default, an outage, a sudden repricing.
Leverage, liquidity mismatch and stretched valuations turn losses into forced selling and funding withdrawal.
Stress spreads through direct exposures, common holdings, funding markets and confidence.
Credit contracts, spending falls, firms fail and unemployment rises.
Real-economy damage raises defaults and lowers asset values, deepening financial stress.
Transmission does not stop at balance sheets. When banks cut credit and insurers withdraw cover after a large event, firms delay investment and households cut spending, which lowers income and raises defaults further. That feedback separates a contained loss from a crisis. Topic depth at real-economy feedback; macroeconomic evidence at GCRI trade and external shocks.
A growing share of credit and market intermediation happens outside banks. The FSB's July 2025 recommendations cover monitoring, leverage in core markets and the counterparty risk management of bank lenders to nonbanks. Topic depth at nonbank financial intermediation.
| Channel | Mechanism |
|---|---|
| Direct exposures | Losses on loans, derivatives and securities issued by a failing institution |
| Fire sales | Forced selling depresses prices and imposes losses on all holders |
| Funding runs | Lenders withdraw short-term funding from institutions seen as exposed |
| Margin and collateral | Volatility raises margin calls, draining liquidity |
| Information | Uncertainty about who is exposed causes withdrawal from sound institutions too |
| Shared infrastructure | Failure of a payment, clearing or technology provider affects all users |
Channels describe mechanisms, not measured strengths.
The size of a crisis depends less on the initial shock than on the state of the system when it arrives. High leverage, short-term funding of illiquid assets, stretched valuations and concentrated exposures turn moderate losses into forced selling and withdrawal of funding. A resilient system, with adequate buffers, transparent exposures and functioning backstops, can absorb the same shock with limited spillover. Analysis therefore looks at vulnerabilities before shocks, so that the industry understands where amplification would come from.
Shocks from outside finance can be large, correlated and sudden, and they often arrive with little warning in the financial data itself. A severe disaster can hit insurers, banks and public budgets in one region at once; an energy shock can raise defaults across industries; a cyber incident at a shared provider can halt services for many institutions. The evidence on these shocks comes from The Global Centre for Risk and Innovation (GCRI), for example on cascades and interdependence.
Analysis uses network science, agent-based modelling and scenario design with aggregated sector data. It does not assess individual firms, recommend transactions or constitute investment advice; see analysis and uncertainty.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Transmission channel | The route by which a shock reaches financial institutions' balance sheets. |
| Contagion | Transmission of losses or stress from one institution or market to others. |
| Second-round effects | Feedback from bank losses to the economy, such as tighter credit deepening a downturn. |
| Common exposure | Holdings of the same or similar assets by several institutions, which makes their losses move together. |
The bodies and documents this page is read against. Status and editions change; each link goes to the issuing body.
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