The Danger Zone: Financial Stability Risks Soar

We are back in the danger zone. Since our previous report, financial stability risks have increased substantially—reversing some of the progress that had been made over the previous three years. Several shocks have recently buffeted the global financial system: unequivocal signs of a broader global economic slowdown; fresh market turbulence in the euro area; and the credit downgrade of the United States. This has thrown us into a crisis of confidence driven by three main factors: weak growth, weak balance sheets, and weak politics.