Global Financial System Fragility

Risk Factor

Black Swan events

Economic Theory

Low-key recession masked by government spending

Regulatory Impact

Google antitrust ruling on illegal monopoly

Contributing Factor

Use of algorithmic trading (Algos)

Potential Consequence

Forced liquidations and margin calls

US Economic Condition

Growing odds of a recession

US Economic Indicator

Weak non-farm payrolls

Corporate Market Signal

Warren Buffett's reduction of Berkshire Hathaway's stake in Apple

Expected Policy Response

Federal Reserve rate cuts

Economic Vulnerability (Japan)

High debt-to-GDP ratio

Demographic Vulnerability (Japan)

Aging population

Primary Trigger (Yen Carry Trade)

Bank of Japan's attempt to raise interest rates to combat inflation

2024-XX-XX

2024-XX-XX

2024-XX-XX

2024-XX-XX

Meanwhile, the destabilizing effects hamper economic recovery efforts in both affected regions and beyond, compounding the challenges faced by peripheral states already struggling to maintain stability and governance. The 2024 Fragile States Index underscores the complex and interconnected nature of global fragility, illustrating how shocks and systemic vulnerabilities are reshaping the contours of governance, security, and resilience worldwide. [...] not exist in isolation; its ripple FUND FOR PEACE FRAGILE STATES INDEX 2024 11 effects are deeply interconnected with global systems, exacerbating fragility in the world’s most vulnerable regions, even far beyond the immediate zones of violence. The cascading effects of displacement, food insecurity, and resource competition often leaves peripheral regions to shoulder the heaviest burdens of global instability. [...] ) 1 0 0 . 0 - M y a n m a r ( 1 1 t h ) H i g h A l e r t 1 0 2 . 7 - C h a d ( 1 0 t h ) 1 0 3 . 5 - H a i t i ( 9 t h ) 1 0 3 . 9 - A f g h a n i s t a n ( 7 t h ) 1 0 3 . 9 - C e n t r a l A f r i c a n R e p u b l i c ( 7 t h ) 1 0 6 . 6 - Y e m e n ( 6 t h ) 1 0 6 . 7 - C o n g o D e m o c r a t i c R e p u b l i c ( 5 t h ) 1 0 8 . 1 - S y r i a ( 4 t h ) 1 0 9 . 0 - S o u t h S u d a n ( 3 r d ) 1 0 9 . 3 - S u d a n ( 2 n d ) V e r y H i g h A l e r t 1 1 1 . 3 - S o m a l i a ( 1 s t )

non-Gaussian phenomena, making precise timing diffi-cult. While a fragile financial system is (very) likely to experience severe stress at some point, the triggering event(s) may not appear for many years; nor the effects of the same triggering events would necessary tip the system into crisis were it not in a fragile state. Hence, our view of "fragility" does not suggest that accurate forecasts of financial crises years in advance are possible. What we can say with more confidence is that a higher [...] of the data in real time is to let the increase in the (trend) credit-to-gdp ratio consist of at least some increase in financial leverage, implying that the fragility of the financial system has risen. Note that in the financial stability literature, it is common practice to filter the data prior to their inclusion in, say, a logit regression of financial crisis; this would automatically default to the 100% "fi-nancial deepening" interpretation of the data. [...] Following existing literature, we view financial fragility stemming in large part from high levels of debt and overvalued assets (collateral). Higher debt in-creases leverage and hence the risk of failure. With higher debt, both household and business have higher debt service burden, and the burden increases with the level of interest rates and credit spreads. The risk of failure also increases when the collateral value is high and above its fundamental value. High valuations of collateral

#### Countries U - Z Uganda Ukraine United Arab Emirates United Kingdom United States Uruguay Uzbekistan Vanuatu Venezuela Viet Nam Yemen Zambia Zimbabwe [...] Dominica Dominican Republic Ecuador Egypt El Salvador Equatorial Guinea Eritrea Estonia Eswatini Ethiopia European Union Fiji Finland France Gabon Gambia Georgia Germany Ghana Greece Grenada Guatemala Guinea Guinea-Bissau Guyana Haiti Honduras [...] Dominica Dominican Republic Ecuador Egypt El Salvador Equatorial Guinea Eritrea Estonia Eswatini Ethiopia European Union Fiji Finland France Gabon Gambia Georgia Germany Ghana Greece Grenada Guatemala Guinea Guinea-Bissau Guyana Haiti Honduras

fragmentation and explores their implications for financial stability—including through potential capital flow reversals, disruptions of cross-border payments, impact on banks’ funding costs, profitability, and credit provision, and more limited opportunities for international risk diversification. Based on the findings, it draws policy recommendations aimed at strengthening financial oversight, building larger buffers, and enhancing international cooperation. [...] financing gap in emerging market and developing economies. Climate policies, including carbon pricing, climate disclosures, and transition taxonomies, are crucial for enabling private climate finance. Innovative financial instruments can help to scale up private climate finance, but the public sector—including multilateral development banks—will have to play a key supporting role. Chapter 3 analyzes the contributions of open-end investment funds to fragilities in asset markets. Open-end [...] Chapter 1 assesses that risks to global growth are skewed to the downside, similar to the assessment in the April 2023 Global Financial Stability Report. Cracks in the financial system may turn into worrisome fault lines should a soft landing of the global economy hoped for by market participants does not materialize. Chapter 2 homes in on the global banking system, providing a fresh assessment of vulnerabilities in a higher-for-longer environment, using an enhanced global stress test and a set