A new framework for comparing financial stability risks

Abstract

Since the global financial crisis of 2007/08, policymakers and market participants alike have paid more attention to financial stability risks, alongside a more longstanding focus on macroeconomic developments. While the emphasis on such risks is welcome, however, it can often be focused solely on specific concerns or issues; there has been relatively little attempt to assess different financial stability risks relative to one another. This opinion piece proposes a simple approach for doing so, based on the building blocks of classical credit analysis. It describes and illustrates a new way of presenting different financial stability risks relative to one another, which would enhance the analysis of both risk managers and policymakers alike.