## Mapping the World’s Financial Weak Spots

_IMF Blog, June 20, 2019_

## Source details

**Canonical URL:** [Mapping the World’s Financial Weak Spots](https://www.imf.org/en/blogs/articles/2019/06/20/blog-chart-of-the-week-mapping-the-worlds-financial-weak-spots)

## Other formats

- [Markdown version](/en/blogs/articles/2019/06/20/blog-chart-of-the-week-mapping-the-worlds-financial-weak-spots/index.md)
- [Structured JSON version](/en/blogs/articles/2019/06/20/blog-chart-of-the-week-mapping-the-worlds-financial-weak-spots/index.json)
- [Bundle manifest](/en/blogs/articles/2019/06/20/blog-chart-of-the-week-mapping-the-worlds-financial-weak-spots/bundle-manifest.json)

## Bibliographic details
- Authors: The Editors
- Published: June 20, 2019

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### Overview and purpose
- Where will the next financial crisis come from? The short answer is: We don’t know. We can, however, look for vulnerabilities in the system that, if left untreated, can develop into problems.
- A vulnerability is defined as "an area of weakness that can amplify and spread an unexpected economic shock, increasing the level of risk to the financial system."
- Analogy used: imagine the impact of an earthquake on a house built on sand, as opposed to bedrock.

### Methodology and scope
- Chart constructed on a five-point scale ranging from lowest (dark green) to highest (red).
- Chart covers six sectors and five country groups.
- The chart shows the distribution of vulnerabilities across six sectors in five regions.
- Constructed using dozens of indicators going back up to two decades.
- Full details available in the Online Annex to the April 2019 Global Financial Stability Report.

### Key findings and elevated vulnerabilities
- Vulnerabilities are elevated in several sectors by historical standards.
- Government debt in the euro area remains one of the most serious vulnerabilities dogging the global financial system.
- Government debt vulnerability is also elevated in the United States and many emerging market countries.
- In advanced economies outside the euro area, household borrowing is high.
- In China, vulnerabilities are high in several sectors, including nonbank financial institutions.
- One noted weak spot: the debt level in US corporations and the risks investors in their securities take; "Lending to heavily indebted companies with weak credit ratings is on the rise and may be a widening crack in the system."

### Policy implications and recommended steps
- Knowing where vulnerabilities are high or rising can help policy makers take steps to protect their financial systems, as well as the global financial system.
- Possible steps include:
  - having banks raise more capital,
  - reducing levels of public debt,
  - imposing curbs on borrowing by households or corporations.
- Data gaps remain an important obstacle to a comprehensive vulnerability analysis and should be filled.

*The Editors, June 20, 2019*

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## Content in this bundle

- **Global Financial Stability Report April 2019; Online Technical Annex 1.1; April 10, 2019**
  - [Global Financial Stability Report April 2019; Online Technical Annex 1.1; April 10, 2019 (Markdown version)](/-/media/files/publications/gfsr/2019/april/english/onlineannex11.pdf.md){rel="alternate" type="text/markdown"}
  - [Global Financial Stability Report April 2019; Online Technical Annex 1.1; April 10, 2019 (PDF)](/-/media/files/publications/gfsr/2019/april/english/onlineannex11.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/wp-content/uploads/2019/06/eng-may-29-heatmap2.png](https://www.imf.org/wp-content/uploads/2019/06/eng-may-29-heatmap2.png)
- [Weak spots in Global Financial System Could Amplify Shocks](https://blogs.imf.org/2019/04/10/weak-spots-in-global-financial-system-could-amplify-shocks/)
- [The Financial System is Stronger, but New Vulnerabilities Have Emerged in the Decade](https://blogs.imf.org/2018/10/09/the-financial-system-is-stronger-but-new-vulnerabilities-have-emerged-in-the-decade-since-the-crisis/)
- [Assessing the Risk of the Next Housing Bust](https://blogs.imf.org/2019/04/04/assessing-the-risk-of-the-next-housing-bust/)

_Source: https://www.imf.org/en/blogs/articles/2019/06/20/blog-chart-of-the-week-mapping-the-worlds-financial-weak-spots_