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Global Financial Stability Report
Shifting Ground beneath the Calm
October 2025
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October 2025
Financial stability risks remain elevated amid risks presented by stretched asset valuations, growing pressure in sovereign bond markets, and the increasing role of nonbank financial institutions (NBFIs).
Despite its deep liquidity, the global foreign exchange market remains vulnerable to macrofinancial uncertainty. Shocks can raise funding costs, widen bid-ask spreads, and intensify excess exchange rate return volatility. These pressures are amplified by structural vulnerabilities including currency mismatches, concentrated dealer activity, and greater NBFI participation. Stress in foreign exchange markets can spill over other asset classes, tightening broader financial conditions.
Increased local currency sovereign bond issuance and domestic absorption have supported emerging market resilience, but financial stability risks could arise from heavy borrowing, overreliance on narrow investor bases, and inadequate policy frameworks.
Recent months have seen elevated trade and geopolitical tensions, rising government debt, and continued growth of nonbank financial intermediaries (NBFIs) and stablecoins. Markets appear complacent to this shifting ground: valuations have returned to stretched levels since the April 2025 Global Financial Stability Report, and financial conditions have eased.
Financial stability risks remain elevated. Valuation models show risk asset prices well above fundamentals, raising the risk of sharp corrections. Sovereign bond markets face pressure from widening fiscal deficits, while stress tests reveal greater interconnectedness and maturity mismatches among banks and NBFIs that could amplify shocks. These vulnerabilities reinforce each other. An abrupt decline in asset prices or sharp rise in yields could strain banks’ balance sheets and pressure open-ended funds. Greater interconnectedness between banks and NBFIs would intensify the transmission of shocks across the financial system.
Policymakers should remain vigilant. Priorities include preserving central bank operational independence in addressing inflation, curbing government deficits, and advancing internationally agreed prudential standards such as Basel 3. Strengthening financial safety nets, enhancing oversight of NBFIs, and regulating stablecoins effectively are also essential to safeguard global financial stability.
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Chapter 1 Data
