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Risks and capability

Four finance and economy risk objects open the portfolio. Order carries no rank. Each is read across driver, exposure, vulnerability, capacity, cascade and consequence.

6 min read0 figures1 table19 notesNR-SECTOR-FINANCE-GLOBAL-2026-BASELINE

Contents
  1. ·Edition home
  2. ·Executive summary
  3. 1Finance is where shocks are priced
  4. 2Key findings
  5. 3Systems and sectors at baseline
  6. 4Risks and capability
    1. 4.1 Risk objects
    2. 4.2 Capability ladder
  7. 5Sovereign bond repricing under inflation and thin fiscal space
  8. 6Readings from the other desks
  9. 7The 2027 agenda
  10. 8Systems in depth
  11. AMethodology
  12. BData appendix
  13. CReferences and record
  14. ·Complete edition, for print

4.1Risk objects

Each risk is read across the chain from hazard to consequence, with its status and evidence-quality level.

  1. ReportedEQL 4RSK-GS05-FIN-001

    Sovereign bond repricing under high debt and non-bank leverage

    Driver
    high public debt, higher yields and leveraged non-bank intermediation1617
    Exposure
    advanced-economy bond markets and emerging market issuers with dollar debt
    Vulnerability
    liquidity that can vanish abruptly; thin fiscal space; funding that depends on repo1
    Capacity
    central bank backstops; bank capital; resolution tools1517
    Cascade
    FIN → HLT, FOO, INF
    Horizon
    1 to 3 years

  2. ReportedEQL 4RSK-GS05-FIN-002

    Debt service crowding out public services in developing countries

    Driver
    high borrowing costs and falling external finance1027
    Exposure
    countries spending more on interest than on health or education10
    Vulnerability
    weak revenue mobilisation; dollar-denominated sovereign borrowing56
    Capacity
    multilateral lending; debt management; safety nets26
    Cascade
    FIN → HLT, FOO
    Horizon
    1 to 5 years

  3. InferredEQL 3RSK-GS05-AIC-003

    AI investment boom reversing

    Driver
    competitive over-investment and uncertain payoffs1
    Exposure
    large technology firms, their lenders and equity markets
    Vulnerability
    opaque financing; stretched valuations118
    Capacity
    bank and insurer capital; supervisory guidance14
    Cascade
    AIC → FIN → TRD
    Horizon
    1 to 5 years

  4. ReportedEQL 3RSK-GS05-INF-004

    Settlement and operational failure in payment systems

    Driver
    cyber, outsourcing and settlement failures1223
    Exposure
    foreign exchange settlement outside payment versus payment; USD 1.4 trillion a day settled gross12
    Vulnerability
    concentration in a few providers; fragmentation of payment rules27
    Capacity
    payment versus payment systems; resilience rules23
    Cascade
    INF → FIN → TRD
    Horizon
    1 to 5 years

4.2Capability ladder

Existence is not readiness. Each of the fifteen capability functions is placed on the ladder by the strongest public evidence for finance and economy at the global level.

Table 4.1Capabilities on the ladder of evidence: listed, exists, demonstrated, tested
FunctionRungLevelStrongest public evidence at baseline
Prevention and mitigationEXISTSBasel III adoption 47% complete in member jurisdictions; credit and operational risk standards effective in about 85%22
Monitoring and observationADEQUATEregular stability reviews by the Fed, ECB and BIS; data thinner for non-banks17181
Early warningEXISTSsurveys of salient risks and stability reviews; no common global signal17
Preparedness and planningEXISTSresolution planning in place; about half of jurisdictions with material gaps in public sector backstops15
Redundancy and reservesADEQUATEbank capital near historic highs; official reserves of USD 13.2 trillion174
ResponseDEMONSTRATEDrate rises in 2026 after the energy shock; emergency liquidity tools exist191
Continuity of critical servicesEXISTSEU digital operational resilience rules apply from 17 January 2025; testing uneven23
RecoveryLISTEDresolution regimes documented; backstop gaps reported15
AdaptationEXISTSsupervisory guidance on AI adoption published in October 202614
Social protectionLISTEDofficial assistance fell 23.1% in real terms; protection cover not consolidated27
Finance and insuranceLISTEDprotection-gap series not opened; no figure used37
Institutional coordinationEXISTSFSB and Basel Committee coordination; implementation review published in 20261622
Technical infrastructureEXISTSpayment versus payment settles 36% of foreign exchange obligations12
WorkforceLISTEDsupervisory and risk skills not reviewed
Research capacityADEQUATEstrong financial-network research; non-bank data access uneven2829
A capability listed in policy is not a tested one; each rung is the strongest public evidence at baseline.

Notes

Numbers are the edition’s reference numbers, so a note reads the same in every chapter. The full list, with every source and its licence, is in Annex C. Annex C, references

  1. 1Bank for International Settlements (ed.), Annual Economic Report 2026: From resilience to robustness? (chapters I to III), Basel, 28 June 2026. BIS, Basel. Observation year 2025 (with events of early 2026). Accessed 2026-11-03.back
  2. 6POST-CLOSE, context only: World Bank (ed.), Global Monthly, October 2026 (global financial conditions, commodity and activity notes; data to 23 October 2026); released after the 30 September evidence close and cited as the position at access. World Bank, Washington. Observation year 2026. Accessed 2026-11-03.back
  3. 17Board of Governors of the Federal Reserve System (ed.), Financial Stability Report, May 2026 (overview and leverage sections; data as of 23 April 2026). Federal Reserve Board, Washington. Observation year 2025 (fourth-quarter data). Accessed 2026-11-03.back
  4. 15POST-CLOSE, context only: Financial Stability Board (ed.), Public sector backstop funding: peer review of jurisdictions, October 2026 (publication page; the report was not opened); released after the 30 September evidence close. FSB, Basel. Observation year 2026. Accessed 2026-11-03.back
  5. 10UNCTAD (ed.), A World of Debt 2026: Rising debt costs and stalling development (report page with key statistics; the full report and data file were not opened). United Nations Trade and Development, Geneva. Observation year 2025 (regional shares 2023; the year of the 51-country and 3.7 billion people counts is not stated on the page). Accessed 2026-11-03.back
  6. 27United Nations Economic and Social Council (ed.), Draft intergovernmentally agreed conclusions and recommendations of the forum on financing for development follow-up, E/FFDF/2026/L.1, as adopted on 24 April 2026, advance unedited version. United Nations, New York. Observation year 2025 (ODA outcome) and 2026. Accessed 2026-11-03.back
  7. 5World Bank (ed.), Global Economic Prospects, June 2026 (publication page and Chapter 1 highlights, The Global Outlook). World Bank, Washington. Observation year 2026 (projections, with 2025 outcomes). Accessed 2026-11-03.back
  8. 26United Nations Inter-agency Task Force on Financing for Development (ed.), Financing for Sustainable Development Report 2026: Implementing the Sevilla Commitment (report page; the full report was not opened). UN DESA, New York. Observation year 2026. Accessed 2026-11-03.back
  9. 18European Central Bank (ed.), Financial Stability Review, May 2026 (overview and special features). ECB, Frankfurt. Observation year 2026. Accessed 2026-11-03.back
  10. 14POST-CLOSE, context only: Financial Stability Board (ed.), Sound practices for the responsible adoption of artificial intelligence (AI): final report, October 2026 (publication page); released after the 30 September evidence close. FSB, Basel. Observation year 2026. Accessed 2026-11-03.back
  11. 12Bank for International Settlements (ed.), BIS Quarterly Review, June 2026 (article: Uncovering FX settlement risk, new measures from the 2025 BIS Triennial Survey). BIS, Basel. Observation year 2025 (April survey). Accessed 2026-11-03.back
  12. 23European Union (ed.), Regulation (EU) 2022/2554 of the European Parliament and of the Council on digital operational resilience for the financial sector (DORA), Official Journal of the European Union, 2022 (consolidated text read on the legal-acts portal; applies from 17 January 2025). Publications Office of the European Union, Luxembourg. Observation year 2022. Accessed 2026-11-03.back
  13. 22Basel Committee on Banking Supervision (ed.), Basel III implementation: adoption status of the standards as of 30 September 2026 (implementation page). BIS, Basel. Observation year 2026. Accessed 2026-11-03.back
  14. 4International Monetary Fund (ed.), Currency Composition of Official Foreign Exchange Reserves (COFER), quarterly series to the second quarter of 2026, retrieved through the IMF data service. IMF, Washington. Observation year 2026 (second quarter). Accessed 2026-11-03.back
  15. 19European Central Bank (ed.), ECB Data Portal, key interest rates (deposit facility rate and main refinancing operations rate, dates of change to 16 September 2026; harmonised index series), retrieved through the ECB data service. ECB, Frankfurt. Observation year 2026. Accessed 2026-11-03.back
  16. 37UNVERIFIED, not opened: Swiss Re Institute (ed.), sigma research on natural catastrophe losses and protection gaps; the publisher page returned access denied and no figure from it is used. Swiss Re, Zurich. Observation year 2025. Accessed 2026-11-03.back
  17. 16POST-CLOSE, context only: Financial Stability Board (ed.), G20 Implementation Monitoring Review: 2026 report, October 2026 (publication page; the report was not opened); released after the 30 September evidence close. FSB, Basel. Observation year 2026. Accessed 2026-11-03.back
  18. 28Jackson, M.O. and Pernoud, A., Systemic Risk in Financial Networks: A Survey, arXiv preprint 2012.12702, December 2020 (the preprint states that it is forthcoming in the Annual Review of Economics; the published version was not opened). Observation year 2020. Accessed 2026-11-03.back
  19. 29Bardoscia, M., Battiston, S., Caccioli, F. and Caldarelli, G., DebtRank: A microscopic foundation for shock propagation, arXiv preprint 1504.01857, version 2, June 2015 (preprint read; the journal version was not opened). Observation year 2015. Accessed 2026-11-03.back

Cite this chapter

Valadbaygi, S. (Ed.). (2026). Chapter 4: Risks and capability. In Global Finance and Economy Risk and Resilience Report 2026: Baseline Edition, The State of the World’s Financial and Economic System. (Baseline Edition 2026, Report No. NR-SECTOR-FINANCE-GLOBAL-2026-BASELINE) [Draft under review]. The Global Centre for Risk and Innovation (GCRI).

Every citation form of the whole report, BibTeX and RIS included, is on the edition home. Cite this report

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