The International Monetary Fund (IMF), in its latest Global Financial Stability Report (GFSR), highlights escalating financial stability risks amid persistent inflation and geopolitical tensions. The report underscores the necessity for robust Environmental, Social, and Governance (ESG) frameworks to bolster financial resilience in this volatile landscape.  

The GFSR emphasizes that while near-term financial stability risks remain contained, vulnerabilities are mounting due to high asset valuations, rising private and government debt, and increased leverage among nonbank financial institutions. These challenges are exacerbated by geopolitical uncertainties, which could lead to sudden market volatility and sharp asset repricing. The IMF advocates for integrating ESG considerations into monetary and fiscal policies to mitigate these risks and promote sustainable economic growth.  

Furthermore, the report addresses the implications of financial fragmentation induced by geopolitical tensions, which could affect cross-border capital allocation and international payment systems. Such fragmentation poses macro-financial stability risks by increasing banks’ funding costs, reducing profitability, and limiting credit provision. The IMF recommends that policymakers assess and quantify geopolitical shock transmissions to financial institutions and ensure that these entities maintain adequate capital and liquidity buffers against rising geopolitical risks.

References
https://www.imf.org/en/Publications/GFSR/Issues/2023/04/11/global-financial-stability-report-april-2023
https://www.santander.com/en/press-room/insights/global-near-term-financial-stability-risks-remain-contained-but-vulnerabilities-are-mounting-in-the-long-term