Turbulent times: geopolitical risk and its impact on euro area financial stability

Daniel Dieckelmann, Christoph Kaufmann, Chloe Larkou, Peter McQuade, Caterina Negri, Cosimo Pancaro and Denise Rößler

Financial Stability Review, 2024, vol. 1

Abstract: Geopolitical risk can be a threat to financial stability and the global economy. It can adversely affect the economy and financial markets and consequently have a negative impact on the funding, lending, solvency, asset quality and profitability of banks and non-banks alike. Recent history suggests that adverse geopolitical events alone are unlikely to cause a systemic crisis, although they may act as a trigger for systemic distress if they interact with pre-existing vulnerabilities. Looking ahead, policy authorities need to monitor geopolitical risk and assess its possible consequences for financial stability. Financial institutions should apply a combination of sound risk management and business diversification to address geopolitical risk. JEL Classification: G1, G21, G23

Keywords: banks; financial stability; Geopolitical risk; non-bank financial intermediaries; transmission channels (search for similar items in EconPapers)
Date: 2024-05
Note: 2857527
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