## Background Analysis 1.2. 2026 IMF Global Banking Stress Test ## Source details **Canonical URL:** [Background Analysis 1.2. 2026 IMF Global Banking Stress Test](https://www.imf.org/-/media/files/publications/gfsr/2026/october/english/backgroundanalysis12.pdf) ## Other formats - [Markdown version](/-/media/files/publications/gfsr/2026/october/english/backgroundanalysis12.pdf.md) - [Structured JSON version](/-/media/files/publications/gfsr/2026/october/english/backgroundanalysis12.pdf.json) --- ### Overview - The global banking system remains broadly resilient under the IMF’s Global Stress Test (GST). - Under an adverse scenario featuring energy supply disruptions, severe recession, higher inflation, higher interest rates, and lower asset prices, the aggregate Common Equity Tier 1 (CET1) ratio declines by about 150 basis points, reaching a trough of 11.5 percent within the three-year stress test horizon. - Banks representing 22 percent of global banking assets are classified as “weak”, as their CET1 ratios fall below 7 percent under the adverse scenario. - The share of weak banks has increased relative to the 2025 GST, reflecting regional impacts from the scenario’s energy supply chain disruptions and the sharp increase in long-term government bond yields. - Sensitivity analysis indicates that losses from exposures to nonbank financial institutions (NBFIs) would be manageable at the system level but could be material for some institutions. - In the United States, loans to NBFIs increased by 18 percent in 2026; exposures to private equity and private credit firms grew by 30 percent. ### Introduction and Purpose - The 2026 Global Banking Stress Test evaluates banks’ ability to withstand an adverse scenario featuring persistent inflation, recession, and a prolonged higher-for-longer interest rate environment, with disruptions to commodity supply chains stemming from geopolitical tensions and trade restrictions. - The scenario incorporates a downward reassessment of expected productivity gains from artificial intelligence (AI). - The analysis examines banks’ potential losses under stress in nonbank financial institutions (NBFIs). - Monitoring resilience and identifying pockets of vulnerability are critical for assessing financial stability risks, given prior episodes of concentrated banking stress in 2023. ### Data and Methodology - The IMF’s Global Stress Test (GST) is a forward-looking framework over a three-year horizon projecting banks’ earnings and capital positions under baseline and adverse scenarios, using publicly available bank-level data as of end-2025. - The framework captures credit losses, valuation changes on securities held for trading, interest rate repricing, noninterest income and expenses, and changes in risk-weighted assets. - The adverse scenario is generated using the IMF’s Global Macrofinancial Model (Vitek 2018), quantifying shocks relative to the baseline and incorporating trade and financial spillovers across 29 economies. - The 2026 GST covers 665 banks across 29 countries, representing approximately $160 trillion in assets at the end of 2025, excluding foreign subsidiaries and capturing over 70 percent of global banking system assets. - A bank is classified as weak if its CET1 ratio falls below 7 percent under the adverse stress scenario, consisting of the Basel minimum requirement of 4.5 percent plus the 2.5 percent capital conservation buffer, and any surcharge applicable to global systemically important banks (G-SIBs). - Further methodological details are referenced to Chapter 2 and the Online Annex of the October 2023 Global Financial Stability Report. ### Stress Scenario (Adverse) - The adverse scenario assumes geopolitical tensions, trade fragmentation, energy supply disruptions, and a sharp reassessment of AI-related valuations, triggering a severe stagflationary shock. - Key macro outcomes over the three-year horizon: - Global real GDP growth falls by about 3 percentage points relative to the baseline over the first two years and remains 2 percentage points below its end-2025 level by 2028. - Global unemployment rises by 3.5 percentage points. - Inflation increases by more than 4 percentage points by 2027. - Short- and long-term interest rates rise by more than 150 and 300 basis points, respectively. - Corporate bond spreads widen by almost 200 basis points. - Equity prices decline by more than 25 percent. - Oil and commodity prices increase by more than 50 percent over the three-year horizon; commodity prices increase by 32 percent in 2026 and a further 26 percent by 2028. - The scenario models an extreme tail event where imported fuel availability is disrupted, oil and gas inventories are depleted as war in the Middle East spreads, and investment retrenchment from US equity markets generates negative wealth effects and fiscal pressures. - Financial market dynamics include widespread fund redemptions, large-scale asset sales, disruptions in repo and interest rate markets, forced unwinding of leveraged trades, and elevated liquidity premiums in government bond markets. - The scenario is applied consistently across countries but varies in macroeconomic specification; oil- and gas-importing economies are hit the most. ### Results: Aggregate and Regional Outcomes - Aggregate outcomes: - The aggregate CET1 ratio falls by about 150 basis points from its starting level, reaching a trough of 11.5 percent in 2026 and recovering modestly to 11.9 percent by the end of the three-year horizon. - Capital depletion is driven primarily by loan losses and rising expenses, partly offset by higher net interest income from a steeper yield curve. - The decline is more than twice as large as the 70-basis-point reduction recorded in the 2025 GST. - Aggregate capital ratios remain above regulatory minimums. - Regional variation: - Banks in Asia experience the largest capital depletion, with elevated loan losses—9 percentage points of capital—associated with higher unemployment and reliance on imported oil and gas; higher initial capital buffers partly absorb the loan losses. - European banks record the second-largest capital decline. - Banking systems in North America and the “Other” country group remain broadly resilient, supported by robust net interest and fee income generation. - In North America, the aggregate CET1 ratio falls by about 160 basis points in the first year of stress before strong net interest income leads to a complete recovery. - Caveat: possible nonlinearities with very high interest rates and government bond yields could not be sufficiently reflected given limited historical episodes. ### Results: Weak and Distressed Banks - Under the adverse scenario: - 110 banks, representing 22 percent of global banking assets in the sample, are classified as weak (CET1 below 7 percent plus any applicable G-SIB buffer). - The share of weak banks has increased by about 3 percentage points since the 2025 GST, largely reflecting the more severe geopolitical shock amid unchanged initial capital levels. - Weak banks are concentrated among smaller institutions and a limited number of large banks. - In North America, the rise in weak banks is driven by market risk from sharp increases in term premiums and long-term government bond yields triggering asset valuation losses in a small number of large banks. - Some jurisdictions see capital ratios fall below the minimum CET1 requirement of 4.5 percent; these distressed banks account for about 7 percent of global banking assets and would require an estimated $68 billion in capital to restore compliance with minimum CET1 requirements. ### NBFI Stress Sensitivity Analysis - Exposure growth and concentration: - In the United States, loans to NBFIs increased by 18 percent between the second quarter of 2025 and the first quarter of 2026, reaching $1.44 trillion. - Loans and commitments to NBFIs reached 18 percent of total loans and almost 65 percent of CET1 capital. - Exposure to private equity firms and business and credit intermediaries reached 33 percent of CET1 capital. - Banks’ total potential exposure, including drawn and undrawn facilities, increased to 134 percent of Tier 1 capital, up from 119 percent a year earlier. - In the European Union and the United Kingdom, major banks’ exposures to private equity and private credit funds reached about $150 billion by the first quarter of 2026, amounting to around 18 percent of CET1 capital. - Sensitivity test design: - The analysis assumes credit loss rates ranging from 2.5 to 20.0 percent, full drawdown of committed credit facilities, and a multiple-notch downgrade of NBFIs that increases regulatory risk weights. - For the United States, the shock assumes risk weights for NBFI exposures increase from 20 percent to 100 percent and that NBFIs draw all unused commitments available. - For the European Union and the United Kingdom, the shock assumes risk weights for NBFI exposures increase from 60 percent to 100 percent and that firms draw all unused commitments available (40 percent additional exposure). - Sensitivity outcomes: - In the United States, aggregate capital ratios decline only modestly across most scenarios—topping out at around −3 percentage points when loss rates reach 20 percent—with relatively few banks breaching the 7 percent Tier 1 threshold. - Several regional banks with high exposure concentrations and some larger banks, including G-SIBs, are materially affected. - Narrowing the analysis to private asset exposures produces similar results; only under an extreme scenario in which private asset exposures are fully written off does the aggregate Tier 1 ratio decline materially by about 5 percentage points, causing nearly 30 banks to fall below the 7 percent benchmark. - In the European Union and the United Kingdom, no bank falls below the 7 percent CET1 threshold in the sensitivity analysis; the smaller estimated impact may partly reflect data limitations and the smaller sample of institutions. - Systemic amplification risk: - NBFI-related losses could become systemic if they coincide with a broader macrofinancial shock, because many banks with large NBFI exposures are also among those experiencing the largest capital depletion under the macro stress test. - The combination of macroeconomic stress and NBFI-related losses could further weaken a meaningful subset of institutions and amplify stress transmission across the financial system. ### Liquidity vulnerabilities linked to NBFIs — Key findings - Liquidity vulnerabilities linked to NBFIs appear concentrated in a relatively small group of banks. - Under a severe drawdown scenario, a limited number of institutions could face contingent liquidity demands that exceed their available liquidity buffers. - Together, these banks account for less than 8 percent of banking sector assets. - Most of these banks are smaller US institutions with large credit and liquidity commitments to NBFIs relative to their size. - These institutions tend to rely more heavily on noncore funding and have lower starting capital ratios, making them more exposed to funding stress during periods of market turmoil (see the October 2025 Global Financial Stability Report). - Stand-alone losses on NBFI exposures appear manageable at the system level, but they could become more consequential when combined with a severe macrofinancial downturn, amplifying stress among banks that are already vulnerable. - The analysis assumes a multiple-notch downgrade of NBFIs, which increases risk weights from 20 to 100 percent in the United States and from 60 to 100 percent in the European Union and the United Kingdom. - Historical private credit loss rates cited for reference include: 6.5 percent during the global financial crisis in 2008 (Cliffwater); 10 percent in 2020 (Proskauer); and 9 percent in 2020 (Lincoln). - Research cited finds that credit and liquidity facility utilization by business credit intermediaries and private equity firms are high during downturns and may not create additional deposit inflows; bank-provided contingent funding often manifests by drawing down bank credit lines in unusually high volumes, which justifies an extreme assumption of a 100 percent utilization rate. ### Conclusion and policy recommendations - The global banking system remains broadly resilient under the IMF’s adverse stress scenario, but a material share of banks would have low capital levels. - Banks in economies exposed to energy import shocks are particularly vulnerable. - Rapid growth in bank lending and liquidity commitments to NBFIs has strengthened linkages between banks and the nonbank financial sector. Policy recommendations: - Complete the implementation of Basel III and other internationally agreed-upon standards to ensure that banks remain resilient in an environment of elevated uncertainty. Reviewing regulations to reduce unnecessary complexity may improve efficiency, but reforms should not weaken resilience, create opportunities for regulatory arbitrage, or undermine international consistency. - Enhance crisis preparedness to reduce the risk that bank failures trigger confidence shocks or fuel severe systemic disruption. In line with the Financial Stability Board’s Key Attributes of Effective Resolution Regimes (2024), crisis management frameworks should recognize that systemic disruptions can arise from institutions beyond the largest banks and thus ensure that recovery and resolution plans are prepared for all institutions that could be systemically significant, or critical if they fail. - Ensure timely asset classification and adequate provisioning, particularly in jurisdictions where banks’ loan portfolios are highly exposed to energy price shocks, so that expected credit losses are recognized and absorbed promptly. - Strengthen monitoring of banks’ exposures to NBFIs, assess how stress at lightly regulated institutions could affect bank solvency and liquidity under adverse scenarios, and close data gaps that hinder a comprehensive assessment of financial sector interconnections. *Global Financial Stability Report Chapter 1, IMF | October 2026* ### Section 1 ### Background Analysis 1.2. 2026 IMF Global Banking Stress Test ### Overview - The global banking system remains broadly resilient under the IMF’s Global Stress Test (GST). - Under an adverse scenario featuring energy supply disruptions, severe recession, higher inflation, higher interest rates, and lower asset prices, the aggregate Common Equity Tier 1 (CET1) ratio declines by about 150 basis points, reaching a trough of 11.5 percent within the three-year stress test horizon. - Banks representing 22 percent of global banking assets are classified as “weak”, as their CET1 ratios fall below 7 percent under the adverse scenario. - The share of weak banks has increased relative to the 2025 GST, reflecting regional impacts from the scenario’s energy supply chain disruptions and the sharp increase in long-term government bond yields. - Sensitivity analysis indicates that losses from exposures to nonbank financial institutions (NBFIs) would be manageable at the system level but could be material for some institutions. - In the United States, loans to NBFIs increased by 18 percent in 2026; exposures to private equity and private credit firms grew by 30 percent. ### Introduction and Purpose - The 2026 Global Banking Stress Test evaluates banks’ ability to withstand an adverse scenario featuring persistent inflation, recession, and a prolonged higher-for-longer interest rate environment, with disruptions to commodity supply chains stemming from geopolitical tensions and trade restrictions. - The scenario incorporates a downward reassessment of expected productivity gains from artificial intelligence (AI). - The analysis examines banks’ potential losses under stress in nonbank financial institutions (NBFIs). - Monitoring resilience and identifying pockets of vulnerability are critical for assessing financial stability risks, given prior episodes of concentrated banking stress in 2023. ### Data and Methodology - The IMF’s Global Stress Test (GST) is a forward-looking framework over a three-year horizon projecting banks’ earnings and capital positions under baseline and adverse scenarios, using publicly available bank-level data as of end-2025. - The framework captures credit losses, valuation changes on securities held for trading, interest rate repricing, noninterest income and expenses, and changes in risk-weighted assets. - The adverse scenario is generated using the IMF’s Global Macrofinancial Model (Vitek 2018), quantifying shocks relative to the baseline and incorporating trade and financial spillovers across 29 economies. - The 2026 GST covers 665 banks across 29 countries, representing approximately $160 trillion in assets at the end of 2025, excluding foreign subsidiaries and capturing over 70 percent of global banking system assets. - A bank is classified as weak if its CET1 ratio falls below 7 percent under the adverse stress scenario, consisting of the Basel minimum requirement of 4.5 percent plus the 2.5 percent capital conservation buffer, and any surcharge applicable to global systemically important banks (G-SIBs). - Further methodological details are referenced to Chapter 2 and the Online Annex of the October 2023 Global Financial Stability Report. ### Stress Scenario (Adverse) - The adverse scenario assumes geopolitical tensions, trade fragmentation, energy supply disruptions, and a sharp reassessment of AI-related valuations, triggering a severe stagflationary shock. - Key macro outcomes over the three-year horizon: - Global real GDP growth falls by about 3 percentage points relative to the baseline over the first two years and remains 2 percentage points below its end-2025 level by 2028. - Global unemployment rises by 3.5 percentage points. - Inflation increases by more than 4 percentage points by 2027. - Short- and long-term interest rates rise by more than 150 and 300 basis points, respectively. - Corporate bond spreads widen by almost 200 basis points. - Equity prices decline by more than 25 percent. - Oil and commodity prices increase by more than 50 percent over the three-year horizon; commodity prices increase by 32 percent in 2026 and a further 26 percent by 2028. - The scenario models an extreme tail event where imported fuel availability is disrupted, oil and gas inventories are depleted as war in the Middle East spreads, and investment retrenchment from US equity markets generates negative wealth effects and fiscal pressures. - Financial market dynamics include widespread fund redemptions, large-scale asset sales, disruptions in repo and interest rate markets, forced unwinding of leveraged trades, and elevated liquidity premiums in government bond markets. - The scenario is applied consistently across countries but varies in macroeconomic specification; oil- and gas-importing economies are hit the most. ### Results: Aggregate and Regional Outcomes - Aggregate outcomes: - The aggregate CET1 ratio falls by about 150 basis points from its starting level, reaching a trough of 11.5 percent in 2026 and recovering modestly to 11.9 percent by the end of the three-year horizon. - Capital depletion is driven primarily by loan losses and rising expenses, partly offset by higher net interest income from a steeper yield curve. - The decline is more than twice as large as the 70-basis-point reduction recorded in the 2025 GST. - Aggregate capital ratios remain above regulatory minimums. - Regional variation: - Banks in Asia experience the largest capital depletion, with elevated loan losses—9 percentage points of capital—associated with higher unemployment and reliance on imported oil and gas; higher initial capital buffers partly absorb the loan losses. - European banks record the second-largest capital decline. - Banking systems in North America and the “Other” country group remain broadly resilient, supported by robust net interest and fee income generation. - In North America, the aggregate CET1 ratio falls by about 160 basis points in the first year of stress before strong net interest income leads to a complete recovery. - Caveat: possible nonlinearities with very high interest rates and government bond yields could not be sufficiently reflected given limited historical episodes. ### Results: Weak and Distressed Banks - Under the adverse scenario: - 110 banks, representing 22 percent of global banking assets in the sample, are classified as weak (CET1 below 7 percent plus any applicable G-SIB buffer). - The share of weak banks has increased by about 3 percentage points since the 2025 GST, largely reflecting the more severe geopolitical shock amid unchanged initial capital levels. - Weak banks are concentrated among smaller institutions and a limited number of large banks. - In North America, the rise in weak banks is driven by market risk from sharp increases in term premiums and long-term government bond yields triggering asset valuation losses in a small number of large banks. - Some jurisdictions see capital ratios fall below the minimum CET1 requirement of 4.5 percent; these distressed banks account for about 7 percent of global banking assets and would require an estimated $68 billion in capital to restore compliance with minimum CET1 requirements. ### NBFI Stress Sensitivity Analysis - Exposure growth and concentration: - In the United States, loans to NBFIs increased by 18 percent between the second quarter of 2025 and the first quarter of 2026, reaching $1.44 trillion. - Loans and commitments to NBFIs reached 18 percent of total loans and almost 65 percent of CET1 capital. - Exposure to private equity firms and business and credit intermediaries reached 33 percent of CET1 capital. - Banks’ total potential exposure, including drawn and undrawn facilities, increased to 134 percent of Tier 1 capital, up from 119 percent a year earlier. - In the European Union and the United Kingdom, major banks’ exposures to private equity and private credit funds reached about $150 billion by the first quarter of 2026, amounting to around 18 percent of CET1 capital. - Sensitivity test design: - The analysis assumes credit loss rates ranging from 2.5 to 20.0 percent, full drawdown of committed credit facilities, and a multiple-notch downgrade of NBFIs that increases regulatory risk weights. - For the United States, the shock assumes risk weights for NBFI exposures increase from 20 percent to 100 percent and that NBFIs draw all unused commitments available. - For the European Union and the United Kingdom, the shock assumes risk weights for NBFI exposures increase from 60 percent to 100 percent and that firms draw all unused commitments available (40 percent additional exposure). - Sensitivity outcomes: - In the United States, aggregate capital ratios decline only modestly across most scenarios—topping out at around −3 percentage points when loss rates reach 20 percent—with relatively few banks breaching the 7 percent Tier 1 threshold. - Several regional banks with high exposure concentrations and some larger banks, including G-SIBs, are materially affected. - Narrowing the analysis to private asset exposures produces similar results; only under an extreme scenario in which private asset exposures are fully written off does the aggregate Tier 1 ratio decline materially by about 5 percentage points, causing nearly 30 banks to fall below the 7 percent benchmark. - In the European Union and the United Kingdom, no bank falls below the 7 percent CET1 threshold in the sensitivity analysis; the smaller estimated impact may partly reflect data limitations and the smaller sample of institutions. - Systemic amplification risk: - NBFI-related losses could become systemic if they coincide with a broader macrofinancial shock, because many banks with large NBFI exposures are also among those experiencing the largest capital depletion under the macro stress test. - The combination of macroeconomic stress and NBFI-related losses could further weaken a meaningful subset of institutions and amplify stress transmission across the financial system. *Source: IMF Global Financial Stability Report Chapter 1 (October 2026).* ### Section 2 ### Liquidity vulnerabilities linked to NBFIs ### Key findings on vulnerabilities - Liquidity vulnerabilities linked to NBFIs appear concentrated in a relatively small group of banks. - Under a severe drawdown scenario, a limited number of institutions could face contingent liquidity demands that exceed their available liquidity buffers. - Together, these banks account for less than 8 percent of banking sector assets. - Most of these banks are smaller US institutions with large credit and liquidity commitments to NBFIs relative to their size. - These institutions tend to rely more heavily on noncore funding and have lower starting capital ratios, making them more exposed to funding stress during periods of market turmoil (see the October 2025 Global Financial Stability Report). - Stand-alone losses on NBFI exposures appear manageable at the system level, but they could become more consequential when combined with a severe macrofinancial downturn, amplifying stress among banks that are already vulnerable. - The analysis assumes a multiple-notch downgrade of NBFIs, which increases risk weights from 20 to 100 percent in the United States and from 60 to 100 percent in the European Union and the United Kingdom. - Historical private credit loss rates cited for reference include: 6.5 percent during the global financial crisis in 2008 (Cliffwater); 10 percent in 2020 (Proskauer); and 9 percent in 2020 (Lincoln). - Research cited finds that credit and liquidity facility utilization by business credit intermediaries and private equity firms are high during downturns and may not create additional deposit inflows; bank-provided contingent funding often manifests by drawing down bank credit lines in unusually high volumes, which justifies an extreme assumption of a 100 percent utilization rate. ### Conclusion and policy recommendations - The global banking system remains broadly resilient under the IMF’s adverse stress scenario, but a material share of banks would have low capital levels. - Banks in economies exposed to energy import shocks are particularly vulnerable. - Rapid growth in bank lending and liquidity commitments to NBFIs has strengthened linkages between banks and the nonbank financial sector. Policy recommendations: - Complete the implementation of Basel III and other internationally agreed-upon standards to ensure that banks remain resilient in an environment of elevated uncertainty. Reviewing regulations to reduce unnecessary complexity may improve efficiency, but reforms should not weaken resilience, create opportunities for regulatory arbitrage, or undermine international consistency. - Enhance crisis preparedness to reduce the risk that bank failures trigger confidence shocks or fuel severe systemic disruption. In line with the Financial Stability Board’s Key Attributes of Effective Resolution Regimes (2024), crisis management frameworks should recognize that systemic disruptions can arise from institutions beyond the largest banks and thus ensure that recovery and resolution plans are prepared for all institutions that could be systemically significant, or critical if they fail. - Ensure timely asset classification and adequate provisioning, particularly in jurisdictions where banks’ loan portfolios are highly exposed to energy price shocks, so that expected credit losses are recognized and absorbed promptly. - Strengthen monitoring of banks’ exposures to NBFIs, assess how stress at lightly regulated institutions could affect bank solvency and liquidity under adverse scenarios, and close data gaps that hinder a comprehensive assessment of financial sector interconnections. --- _Source: https://www.imf.org/-/media/files/publications/gfsr/2026/october/english/backgroundanalysis12.pdf_