News: The International Monetary Fund (IMF) has released the October edition of the twice a year, Global Financial Stability Report (GFSR) recently.
About Global Financial Stability Report (GFSR)
- It provides a comprehensive assessment of the global financial system, highlighting vulnerabilities, and giving policy recommendations to bolster resilience.
- Published by: International Monetary Fund (IMF)
- Frequency: Twice a year (In April and October)
- It focuses on current market conditions, highlighting systemic issues that could pose a risk to financial stability and sustained market access by emerging market borrowers.
- The Report draws out the financial ramifications of economic imbalances highlighted by the IMF’s World Economic Outlook.
Key Highlights of GFSR October 2025 Edition: “Shifting Ground beneath the Calm”
- Risks remain elevated: The report warns that, despite calm surface conditions, financial stability risks are high due to “stretched” asset valuations, rising government debt, and the growing share of credit delivered by NBFIs, which are less regulated.
- Asset price risks: Global risk asset prices (like equities) are above fundamental values, raising the danger of sudden corrections with broader market impact.
- Role of NBFIs: The expansion of non-bank credit (private equity funds, hedge funds, fintech lending, crypto markets) is seen as the “biggest systemic risk” now. NBFIs are more vulnerable in volatile conditions and transmit shocks to the banking sector.
- Sovereign bond market pressures: High debt and fiscal deficits are pushing longer-term bond yields higher. These pressures could interact with banks or NBFIs to trigger spillovers, especially where governments rely on narrow investor bases.
- Emerging markets: Local currency bond issuance and domestic investors have helped EMs be more resilient, but risks remain from global shocks and reversal of capital flows.
- Geopolitical risks and fragmentation: Tensions and decoupling increase financial market volatility and could reverse capital flows, impacting financial stability worldwide.
