The current economic environment is particularly challenging for financial stability.

■  The combination of high inflation, lower growth, and much tighter global financial conditions may crystallise pre-existing financial vulnerabilities or give rise to new ones.

■  So far, global financial markets have largely coped with evolving economic conditions and high volatility in an orderly manner, with limited and temporary support when necessary, and systemic financial institutions have shown resilience to market strains – in large part due to the post-crisis financial reforms introduced by the G20.

■  However, policy space is limited in many jurisdictions. This makes it more difficult for authorities to intervene should a shock materialise and underscores the need to remain vigilant and take policy measures to maintain the resilience of the financial system.

New shocks may expose a number of current vulnerabilities… ■ Market turbulence could be amplified by still elevated valuations of some assets, forced sales from sudden unwinding of leveraged positions of non-bank financial institutions, and liquidity mismatches in some types of funds. Further stress in commodities, bond and repo markets could spill over to the financial system and requires close monitoring.

■ Debt servicing pressures may surface due to high debt levels across the sovereign, nonfinancial corporate and household sectors. Emerging market economies also face the prospect of capital outflows due to high external debt mostly in US dollars. All of these strains could also adversely impact banking sector resilience.

… while a number of vulnerabilities associated with structural changes are emerging.

■  Accelerated digitalisation has improved efficiencies but also raised operational resilience issues, including cyber risks; dependence on BigTech and FinTech providers in some markets; and threats to the business models of traditional financial institutions.

■  The recent turmoil in crypto-asset markets has highlighted a number of vulnerabilities in the sector that are similar to those in traditional financial markets. Growing linkages between crypto-asset markets and the traditional financial system increase the risk of spillovers, though the few linkages to date have limited the degree of contagion.

■  Exposure to climate risks is becoming more evident and recent climate events have shown the potential for non-linear effects. Russia’s war in Ukraine is threatening global energy security and adding complexity for jurisdictions seeking to transition to net zero.

The FSB is working to tackle current and emerging vulnerabilities.

■  Intensified monitoring of vulnerabilities and continued support of international cooperation and coordination in the aftermath of COVID-19 and the war in Ukraine.

■  Work to enhance the resilience of the non-bank financial intermediation (NBFI) sector, which is a key priority. The FSB is delivering a set of policy proposals to reduce spikes in liquidity demand that can give rise to system-wide imbalances; enhance the resilience of liquidity supply in stress; and enhance risk monitoring and preparedness.