One critical thing that impacts each and every one of us is stability in the financial system, and any challenges in this, impacts economic development, investor confidence and overall quality of life.
Financial stability risks have increased rapidly as the resilience of the global financial system has faced a number of tests. The failures of Silicon Valley Bank and Signature Bank of New York and the loss of confidence in Credit Suisse are powerful reminders of the challenges posed by the interaction between tighter monetary and financial conditions and the buildup in vulnerabilities since the global financial crisis.
Rising geopolitical tensions have intensified concerns about global economic and financial fragmentation. Geopolitical tensions have increased globally over the past few years amid deteriorating diplomatic ties between the countries. Geopolitical factors may already be influencing the global economic and financial landscape. Several studies document that geopolitical factors matter for international trade linkages and that global trade has declined in recent years after major countries imposed new restrictions on the exchange of goods and services.
To counter the above risks.
A) Policymakers need to be aware of potential financial stability risks associated with a rise in geopolitical tensions and devote resources to their identification, quantification, management, and mitigation.
B) Based on the assessments of geopolitical risks, banks and nonbank financial institutions may need to hold adequate capital and liquidity buffers to mitigate the adverse consequences of rising geopolitical risks.
C) In the face of rising geopolitical tensions, the adequacy of the global financial safety net needs to be ensured through strong levels of international reserves held by countries, bilateral and regional financial arrangements, and precautionary credit lines from international financial institutions.
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