Stretched asset valuations and pressures in core sovereign bond markets are keeping financial stability risks elevated amid heightened economic uncertainty. These vulnerabilities could be amplified by the growth of nonbank financial institutions — through their growing importance as market makers, liquidity providers and intermediaries in private credit, real estate, and crypto markets.

As the IMF details in the new Global Financial Stability Report, stress testing shows that the vulnerabilities of these nonbank intermediaries can quickly transmit to the core banking.

“In recent months, global markets have appeared calm despite ongoing uncertainties ranging from trade tensions to fiscal concerns. Yet underneath the surface, we are observing subtle shifts and if these shifts are not carefully managed, it could undermine the resilience of the financial system.” Said Tobias Adrian, Director of the Monetary and Capital Markets Department at the IMF.