The Global Risks Alliance (GRA)
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.
Real economy feedback · Financial system · Committee meeting 1
percentile vs history, 0 to 100
red: most connected node
Fig.Systemic risk dashboard. Design wireframe with placeholder names and illustrative values, not a record or a live system.
Real-economy feedback is the two-way link between financial stress and output, jobs and investment: credit contracts, collateral values fall and defaults rise, weakening lenders further. It is measured with credit gaps, lending surveys and growth-at-risk. Macroprudential authorities, central banks and finance ministries hold the decisions.
How physical and transition risk could reach a loan book under different scenarios. Illustrative design values.
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.
Banks short of capital or funding cut lending. Small firms and households with few alternatives are hit hardest, reducing spending and investment.
Falling property and asset prices cut what borrowers can pledge, reducing credit further. Collateral constraints amplify both booms and busts.
Recessions raise unemployment and business failures, which raise loan losses. Weaker lenders tighten credit again.
Banks hold their government's debt, and governments stand behind their banks. Stress in either can spread to the other.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Credit-to-GDP gap | The deviation of the credit-to-GDP ratio from its long-term trend, a guide for countercyclical buffers. |
| Growth-at-risk | A measure of downside risk to GDP growth conditional on financial conditions. |
| Countercyclical capital buffer | A capital buffer built in credit booms and released in downturns to sustain lending. |
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 | OFFICIAL |
| 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 | OFFICIAL |
The topic as a computational graph: named sources feed the methods, an evidence review gates the outputs, and the decisions stay with the authorities that hold them.
Fig. 02Nodes carry their type, two metric rows and a state; connectors show what feeds what; dashed frames name the owners; the timeline is the cadence. Design of the pipeline, not a record of a run.
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 |
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 |
How reduced lending affects investment, hiring and consumption.
How bank support, lost revenue and automatic stabilizers affect government budgets.
How banks' holdings of government debt and governments' support for banks link their fortunes.
How losses are distributed across households, firms and taxpayers.
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.
| 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 |
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.