Report · Supervisor
Financial stability risks from geoeconomic fragmentation
The ECB and the European Systemic Risk Board offer a framework for bringing geopolitical risk into financial stability analysis.
- Organization
- European Central Bank (ECB) and European Systemic Risk Board (ESRB)
- Document date
- 22 January 2026
- Type
- Report
- Language
- English
- Scope
- European Union
- Length
- 93 pages
What it contains
The report, published on 22 January 2026 by the joint ECB and European Systemic Risk Board (ESRB) workstream on financial stability risks from geoeconomic fragmentation, examines the link between geopolitical and geoeconomic risks and financial stability. It provides a framework for regular monitoring with 40 indicators in five categories: military conflicts and wars, infrastructure vulnerabilities (including energy and digital), trade disruptions and sanctions, capital and financial risks, and political or societal factors. It identifies three transmission channels, the financial, the real economy and the operational, and focuses on the financial one.
The indicators confirm that geopolitical risks have intensified, with a jump in economic and trade policy uncertainty in 2024 and 2025 and a 27% rise in trade disputes at the WTO between 2015 and 2024. Even so, financial volatility has stayed contained or reverted soon after short-lived spikes. Growth-at-risk (GaR) models show that geopolitical indicators lower expected growth and, since 2014, have taken one to two percentage points off GaR; geopolitical shocks and uncertainty raise systemic stress, reduce loan growth and tighten lending conditions. Economies more open to trade or with higher public debt appear more vulnerable to amplification.
In the granular analysis, both banks and non-banks reduce lending, especially cross-border, after geopolitical shocks: euro area banks with less capital headroom or large exposures to high-risk countries reduced the probability of new lending relationships (by about 6%) and the average loan amount (by 9%), and non-bank financial institutions cut exposures to the rest of the world (17%) more than domestic ones (7%) after the Russian invasion of Ukraine. The macro-financial stress tests illustrate the stabilising role of a sound and well-capitalised financial system. The report acknowledges data gaps and proposes complementing the indicators with scenario analysis.
Why it matters for risk management
It gives a list of indicators and a methodology for building geopolitical risk into stress scenarios, risk appetite and the monitoring of cross-border and sovereign exposures. It is calibrated for the European Union; in the Dominican Republic its indicators and results need to be adapted to an open economy and to each institution’s own exposure.
Summary prepared by the Dominican Republic Risk Management Club from a reading of the original document, with the source verified on 12 October 2026. It does not replace reading the official text and is not advice.
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