Global Financial Stability Report, October 2025: Shifting Ground beneath the Calm
Global Financial Stability Report, October 2025
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- Published: October 14, 2025
Elevated Financial Stability Risks — Overview
- Financial stability risks remain elevated amid stretched asset valuations, growing pressure in sovereign bond markets, and the increasing role of nonbank financial institutions (NBFIs).
- Markets appear complacent despite shifting ground: valuations have returned to stretched levels since the April 2025 Global Financial Stability Report, and financial conditions have eased.
- Valuation models show risk asset prices well above fundamentals, raising the risk of sharp corrections.
- Sovereign bond markets face pressure from widening fiscal deficits.
- Stress tests reveal greater interconnectedness and maturity mismatches among banks and NBFIs that could amplify shocks.
- Interacting vulnerabilities: 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 transmission of shocks across the financial system.
Global Foreign Exchange Market — Risks and Mechanisms (Chapter 2)
- The FX market is the world’s largest and most liquid financial market, driven largely by rising participation of nonbank financial institutions and increased use of derivatives.
- Episodes of heightened macrofinancial uncertainty affect FX market functioning by:
- Raising foreign currency funding costs.
- Widening bid-ask spreads.
- Amplifying excess exchange rate return volatility.
- Structural vulnerabilities amplifying FX strains:
- Significant currency mismatches on balance sheets.
- Concentrated dealer activity.
- Elevated participation by nonbank financial institutions.
- Additional operational and settlement risks:
- Heightened settlement risks (the possibility that one party will deliver currency without receiving the countervalue).
- Exposure to operational risks including technical failures and cyberattacks.
- Spillovers: Stress in FX markets can spill over into other asset classes, tightening overall financial conditions, especially in economies with significant currency mismatches or weaker fiscal positions.
- Policy mitigation levers:
- Enhancing surveillance.
- Ensuring adequate buffers at financial institutions.
- Strengthening the global financial safety net and operational resilience.
Emerging Market Sovereign Debt — Changing Landscape (Chapter 3)
- Context: rising debt levels, heightened vulnerabilities to global shocks, and reduced interest from global investors given lagging performance of emerging market debt.
- Divergent paths:
- Major emerging markets: largely able to expand borrowing through increased local issuance to local investors.
- Other emerging and frontier markets: reliance on shorter maturity financing from domestic banks and the central bank, as well as foreign currency debt.
- New empirical finding: countries with deeper local investor bases have experienced greater resilience to global shocks over the last 15 years.
- Risks from local investor reliance:
- Heavy borrowing.
- Overreliance on a narrow group of domestic investors, particularly if driven by financial repression.
- Policy priorities to develop strong and resilient local currency bond markets:
- Improve macroeconomic fundamentals.
- Strengthen policy frameworks and robust financial market systems.
- Develop foundational market infrastructure.
- Provide legal certainty.
- Strengthen sovereign debt management practices.
Policy Priorities and Recommendations (Across Chapters)
- Preserve central bank operational independence in addressing inflation.
- Curb government deficits.
- Advance internationally agreed prudential standards such as Basel 3.
- Strengthen financial safety nets.
- Enhance oversight of nonbank financial institutions.
- Regulate stablecoins effectively.
- For FX markets: enhance surveillance, ensure adequate buffers, and strengthen operational resilience.
- For emerging market debt: develop market infrastructure, legal frameworks, and sovereign debt management.
International Monetary Fund — Global Financial Stability Report, October 2025
Content in this bundle
- Chapter 1 Data
- Chapter 2 Data
- Chapter 1
- Chapter 1 Annex
- Chapter 2
- Chapter 2 Annex
- Risk and Resilience in the Global Foreign Exchange Market — Chapter 2 Summary
- Chapter 3
- Chapter 3 Annex
- Ch3sum
- Executive Summary
- Foreword
- Global Financial Stability Report, October 2025, "Shifting Ground beneath the Calm"
- Full Report