Financial stability risks from geoeconomic fragmentation

A new ECB-ESRB report examines the link between geopolitical and geoeconomic risks and financial stability. It introduces a comprehensive framework for regular monitoring of geopolitical risks, integrating a wide array of quantitative indicators with a rich empirical modelling foundation to evaluate the impact on the financial sector. The framework is an instrument for policymakers and financial authorities, enabling a systematic assessment of how geopolitical developments affect macro-financial conditions. The work contributes in three important ways to risk monitoring. First, it establishes a monitoring toolkit for indicator-based analysis of geopolitical risks that can be readily integrated into existing financial stability frameworks. Second, it explores the macro-financial transmission of geopolitical shocks using state-of-the-art econometric models. Third, it draws on granular datasets to document how banks and non-banks adjust to geopolitical shocks and periods of elevated policy uncertainty.

This SUERF-Baffi Bocconi e-lecture brings together leading authors of the report with three top experts to discuss key findings and the way forward.