{ "id": "S02", "slug": "global-funding-seizure", "title": "A global funding seizure reaches sovereign balance sheets", "version": "0.5.0", "status": "active", "orientation": "downside", "family": "A", "short_title": "Global funding seizure", "thematics": [ "economic-security-supply-chains", "resilience-crisis-preparedness" ], "likelihood_type": "systemic", "likelihood_note": null, "scores": { "likelihood_2y": { "band": 3, "rationale": "An event meeting this specification in full has occurred once in the past forty years, in 2008. Partial episodes in 2020, 2022 and 2023 were contained within weeks by central bank action. Concentrated technology valuations, leverage outside the banking system and faster deposit movement raise the near-term probability; standing liquidity facilities and higher bank capital lower it. The two-year probability is placed between 1 and 5 per cent." }, "likelihood_10y": { "band": 4, "rationale": "Over ten years the historical frequency of one full event in forty years implies a probability inside the 5 to 25 per cent band. Public debt and interest costs are higher than before 2008, which leaves less room to absorb private losses, and a larger share of credit is held by funds without access to central bank facilities. The band is not raised further because supervisors test banks against paths of this severity." }, "impact_systemic": { "level": 4, "rationale": "After 2008 world output remained several per cent below its earlier trend five years later. This specification sets a smaller equity fall than 2008 and assumes that core government bond and dollar funding markets are kept open, so the loss is placed below that episode: 2.5 to 5 per cent of global output at risk over five years, with structural damage in the nations that lose market access." }, "impact_national": { "level": 4, "rationale": "A highly exposed nation loses market access while paying for bank support and unemployment. Public salaries and benefits are paid late and imports of fuel and medicines are rationed. Ireland's public debt rose from about 25 to about 120 per cent of GDP after it guaranteed its banks; Sri Lanka rationed fuel and medicines within weeks of default. Damage to essential services and output is severe, and recovery takes years." }, "confidence": { "level": "medium", "reason": "Severity is well calibrated by 2008, the euro area crisis and supervisory stress tests. Timing, and the number of governments that lose market access, are uncertain." }, "priority": 12, "tier": "II", "source": "model-panel-v0.5" }, "scorecard": { "onset": "weeks", "duration": "1 year (funding markets impaired for nine months)", "warning": "months (valuation and leverage signals, widely discounted)", "scope": "global", "origin": "accidental (arising inside the financial system)", "external_support": "partial (swap lines and multilateral lending, unevenly available)", "policy_response": "current plans executed", "recovery_horizon": "years" }, "summary": "A sharp repricing of technology and commercial property assets triggers withdrawals from leveraged funds and from bank deposits that can move within hours. Global equities fall 40 per cent, cross-border private lending contracts by 25 per cent and borrowing spreads for vulnerable sovereigns rise by 500 basis points. Funding markets remain impaired for nine months. Several governments lose market access as bank support, unemployment spending and refinancing needs fall due together. The test for a nation is whether it can keep payments and essential services running and allocate losses without turning liquidity support into a public guarantee it cannot afford. The record continues the first-pass global financial crisis and absorbs the sovereign funding crisis as its national face.", "narrative": { "dateline": "November 2029", "text": "The repricing began in the second week of January 2029, when two of the largest listed technology companies cut their capital spending plans for data centres and a group of lenders marked down the office and data-centre loans that had been valued on the earlier plans. Within ten days three private credit funds had suspended redemptions and the banks that financed them were drawing on central bank facilities. Deposits moved faster than in any earlier episode: one mid-sized lender lost a fifth of its deposits in two working days, most of it through mobile applications outside business hours.\n\nBy the end of February global equities were 40 per cent below their peak. The major central banks reopened currency swap lines and bought government bonds to keep core markets working, and those markets held. The stress then moved to weaker borrowers. Cross-border private lending contracted by a quarter over the following two quarters as banks and funds reduced foreign exposures. Trade finance lines were cut for importers in South Asia, Africa and Latin America, and borrowing spreads for the weaker sovereigns rose by 500 basis points.\n\nThe fiscal demands then fell due together. Governments were asked to guarantee bank liabilities, pay for rising unemployment and refinance maturing debt in the same quarter, in markets that would lend only at short maturities. Eight governments lost market access between March and August. Two of them had guaranteed their banking systems in full in the first week and found that the guarantee had moved the doubt from the banks to the state. Four suspended payments on external bonds. Restructuring talks were slow because bondholders, bilateral lenders and commodity traders holding collateral had no common forum.\n\nIn the countries that lost access, the effects reached public services within weeks. Salaries for teachers and health workers were paid late or in part. Importers could not obtain foreign currency for fuel and medicines, and hospitals rationed supplies. Card and transfer systems continued to operate throughout, which limited the damage, but several governments imposed limits on withdrawals and on transfers abroad.\n\nFunding markets remained impaired for nine months. Issuance by investment-grade borrowers resumed in October 2029. By then unemployment in the advanced economies had risen by three percentage points, technology investment had fallen by a third and several large infrastructure projects had lost their financing. Central banks that held large quantities of government debt faced public pressure to hold more.\n\nThe governments that came through with their capability intact had three things in common. They held liquid reserves and long debt maturities at the start. They had resolution regimes that imposed losses on shareholders and creditors before public money was used. They limited liquidity support by amount and by time, and said so in public, so that it was not read as an open guarantee. Those that could not do this spent the following years servicing the cost." }, "anchors": [ { "shock_id": "global-financial-crisis-2008", "date": "2008–2009", "event": "Global financial crisis", "what_happened": "Lehman Brothers failed on 15 September 2008 and interbank and cross-border lending froze. The S&P 500 fell about 57 per cent from its October 2007 peak to March 2009. World merchandise trade volume fell about 12 per cent in 2009 and world output contracted that year. US unemployment peaked at 10 per cent in October 2009.", "calibrates": "The full path: equity fall, funding freeze, contraction of cross-border lending and a recession lasting years. Standard Severe sets a smaller equity fall than 2008 and assumes core markets are kept open." }, { "shock_id": "euro-area-sovereign-debt-crisis-2010", "date": "2010–2012", "event": "Euro area sovereign debt crisis", "what_happened": "Greece, Ireland and Portugal lost market access and entered European Union and IMF lending programmes between May 2010 and May 2011. Ireland had guaranteed most liabilities of its domestic banks in September 2008; its public debt rose from about 25 per cent of GDP in 2007 to about 120 per cent in 2012. Greek output fell by about a quarter between 2008 and 2013.", "calibrates": "The channel this scenario tests: private bank losses assumed by the state, loss of market access and cuts to public services. A blanket guarantee can move the funding problem from the banks to the sovereign." }, { "shock_id": "march-2020-dash-for-cash", "date": "March 2020", "event": "March 2020 dash for cash", "what_happened": "Investors sold government bonds to raise cash and the US Treasury market stopped functioning normally. The Federal Reserve bought more than US$1 trillion of Treasury and mortgage-backed securities within three weeks and reopened swap lines with other central banks. The IMF reported portfolio outflows from emerging markets of about US$100 billion, the largest on record.", "calibrates": "Onset in weeks and the part played by leverage outside banks. Markets recovered quickly because central bank support was very large; the scenario assumes support that is slower and partial outside the core." }, { "shock_id": "svb-and-credit-suisse-2023", "date": "March 2023", "event": "SVB and Credit Suisse", "what_happened": "Depositors withdrew US$42 billion from Silicon Valley Bank on 9 March 2023 and had requested a further US$100 billion for the following day, according to the Federal Reserve's review. US authorities then protected all deposits at the bank. Credit Suisse was sold to UBS on 19 March with state support and about 16 billion Swiss francs of its additional tier 1 bonds were written down.", "calibrates": "Deposit mobility: a run completed in two days, not weeks. It also shows the pressure on authorities to extend protection beyond the insured limit." }, { "shock_id": "uk-gilt-crisis-2022", "date": "September–October 2022", "event": "UK gilt crisis", "what_happened": "After a fiscal statement on 23 September 2022, 30-year gilt yields rose by more than 100 basis points in four days. Leveraged liability-driven investment funds used by pension schemes faced collateral calls and sold gilts. The Bank of England announced temporary purchases of up to £65 billion on 28 September and bought about £19 billion.", "calibrates": "An advanced-economy government bond market can be destabilised within days by leveraged holders outside the banking system. Support limited by amount and by time was sufficient." }, { "shock_id": "sri-lanka-default-2022", "date": "April 2022", "event": "Sri Lanka default", "what_happened": "The government announced a suspension of external debt payments on 12 April 2022, its first default. Foreign currency for imports ran out; fuel, cooking gas and medicines were rationed and there were long daily power cuts. Inflation approached 70 per cent in September 2022 and the president resigned in July. An IMF arrangement of about US$3 billion was approved in March 2023.", "calibrates": "The national face of the scenario for a borrower with low reserves: loss of funding reaches essential services within weeks and restructuring takes years." } ], "parameters": { "common": { "severity": { "major": "major", "severe": "severe", "extreme": "extreme" }, "duration": { "major": "90 days", "severe": "1 year (funding markets impaired for nine months)", "extreme": "3 years" }, "onset": { "major": "weeks", "severe": "weeks", "extreme": "days" }, "warning": { "major": "months", "severe": "months (valuation and leverage signals, widely discounted)", "extreme": "none" }, "scope": { "major": "regional", "severe": "global", "extreme": "global" }, "origin": { "major": "accidental", "severe": "accidental (arising inside the financial system)", "extreme": "accidental" }, "external_support": { "major": "full", "severe": "partial (swap lines and multilateral lending, unevenly available)", "extreme": "none" }, "concurrency": { "major": "standalone", "severe": "standalone", "extreme": "plus one named scenario (S01)" }, "policy_response": { "major": "current plans executed", "severe": "current plans executed", "extreme": "current plans executed" }, "recovery_horizon": { "major": "months", "severe": "years", "extreme": "structural" } }, "specific": [ { "name": "Global equity fall, peak to trough", "default": "40 per cent", "range": "25 to 55", "unit": "per cent", "note": "Smaller than the fall of 2007 to 2009; technology shares fall further than the index." }, { "name": "Contraction in cross-border private lending", "default": "25 per cent", "range": "10 to 40", "unit": "per cent over two quarters", "note": "Bank and non-bank lending together, including trade finance." }, { "name": "Rise in vulnerable sovereign borrowing spreads", "default": "500 basis points", "range": "300 to 1,000", "unit": "basis points", "note": "Applied to sovereigns with high refinancing needs or low reserves; core issuers see yields fall or hold." }, { "name": "Period of impaired funding markets", "default": "9 months", "range": "3 to 18", "unit": "months", "note": "Measured to the resumption of normal issuance by investment-grade borrowers." }, { "name": "Governments losing market access", "default": "8", "range": "3 to 20", "unit": "sovereigns", "note": "The specification says 'several'; eight is the working value for Standard Severe." }, { "name": "Deposit outflow at exposed banks", "default": "20 per cent in two working days", "range": "10 to 40", "unit": "per cent of deposits", "note": "Concentrated in uninsured balances held by firms and funds." }, { "name": "Scope of public guarantee", "default": "liquidity support limited by amount and time", "range": "alternative: guarantee of all bank liabilities", "unit": null, "note": "The alternative moves bank losses to the sovereign and is the setting at Standard Extreme." } ] }, "transmission": [ "Technology and commercial property assets reprice sharply; lenders and funds mark down loans and holdings valued on earlier earnings and occupancy assumptions.", "Leveraged funds face collateral calls and redemptions, suspend withdrawals and sell liquid assets, including government bonds.", "Uninsured deposits leave exposed banks within days; banks draw on central bank facilities and lend to each other only against the best collateral.", "Banks and funds reduce foreign exposures; cross-border private lending and trade finance contract and the currencies of borrowing countries depreciate.", "Credit to firms and households contracts; investment falls, unemployment rises and tax revenue declines.", "Governments face bank support, unemployment spending and refinancing in the same period; spreads for vulnerable sovereigns rise by 500 basis points.", "Several governments lose market access; salaries, benefits and imports of fuel and medicines are paid late or rationed.", "Loss allocation is contested; divided creditors slow restructuring and central banks are pressed to finance governments." ], "loading": [ { "dimension": "Hard", "domain": "defence-security", "load": "Low", "channel": "Procurement and readiness spending are deferred under fiscal consolidation; no direct security effect." }, { "dimension": "Hard", "domain": "strategic-infrastructure", "load": "Medium", "channel": "Project finance is withdrawn; payment, clearing and settlement systems must operate through the stress." }, { "dimension": "Hard", "domain": "critical-technology", "load": "Medium", "channel": "Venture, private credit and data-centre financing contract; public and corporate research budgets are cut." }, { "dimension": "Soft", "domain": "government-effectiveness", "load": "High", "channel": "Loss allocation, bank resolution, debt management and the payment of salaries and benefits without market access." }, { "dimension": "Soft", "domain": "human-capital", "load": "Medium", "channel": "Unemployment rises; health and education spending is cut or paid late where the state loses funding." }, { "dimension": "Soft", "domain": "influence-cohesion", "load": "Medium", "channel": "Disputes over who bears losses reduce trust in institutions; aid and diplomatic budgets fall." }, { "dimension": "Economic", "domain": "macro-financial", "load": "High", "channel": "Bank and non-bank funding, sovereign refinancing, reserves, the currency and the cost of public guarantees." }, { "dimension": "Economic", "domain": "industry-trade-supply", "load": "High", "channel": "Credit to firms and trade finance contract; demand, investment and employment fall." }, { "dimension": "Economic", "domain": "energy-resources", "load": "Low", "channel": "Commodity demand and prices fall; importers short of foreign currency face fuel shortages." } ], "stakeholders": { "government": { "exposure": "Refinancing needs, contingent liabilities to banks, reserve adequacy and the capacity to keep paying salaries and benefits.", "actions": [ "Test the public balance sheet against bank support, unemployment spending and refinancing falling due together at spreads 500 basis points higher", "Set limits on liquidity support by amount and duration in advance, and complete resolution plans that place losses on shareholders and creditors first", "Lengthen debt maturities, hold liquid reserves and agree swap or precautionary credit lines before they are needed" ], "watch": [ "Gross financing needs due within 12 months", "Bank holdings of domestic government debt", "Share of uninsured deposits and the speed of outflows" ], "relevance": 3 }, "technology": { "exposure": "Dependence on equity, venture and private credit funding for data centres and research; operation of payment and settlement systems.", "actions": [ "Extend funding maturities and reduce reliance on a single lender or fund", "Hold operating cash at more than one institution and within insured or collateralised arrangements", "Test payment, clearing and settlement systems for peak volumes during a run" ], "watch": [ "Redemption terms of private credit funds", "Valuations of data-centre leases and loans", "Capital spending guidance from the largest technology companies" ], "relevance": 3 }, "investors": { "exposure": "Leveraged positions; illiquid property and private credit holdings; bonds of sovereigns with large refinancing needs.", "actions": [ "Apply the scenario path to sovereign, bank and property holdings together and not one portfolio at a time", "Review liquidity terms against the speed at which collateral calls and redemptions can arrive", "Assess sovereign exposures by refinancing need and creditor composition as well as by rating" ], "watch": [ "High-yield and emerging-market sovereign spreads", "Use of central bank liquidity facilities and swap lines", "Redemption suspensions in property and credit funds" ], "relevance": 5 }, "public": { "exposure": "Employment, mortgages, pensions and deposits; in countries that lose market access, public salaries, fuel and medicines.", "actions": [ "Households should know the deposit insurance limit and which accounts it covers", "Local governments should hold operating cash to cover payroll through delayed transfers", "Media and civil society should report who bears losses and on what terms" ], "watch": [ "Unemployment claims", "Mortgage rates and arrears", "Late payment of public salaries and benefits" ], "relevance": 3 } }, "regions": [ { "region": "north-america", "exposure": "High", "rationale": "Origin of the technology and property repricing; the largest non-bank sector and the dollar funding markets on which others depend." }, { "region": "europe", "exposure": "High", "rationale": "Banks are exposed to property and to domestic government debt; several members have high debt and limited fiscal room." }, { "region": "china", "exposure": "High", "rationale": "Property losses and local government debt are already large and export demand falls, although capital controls limit outflows." }, { "region": "indo-pacific", "exposure": "Medium", "rationale": "Open capital accounts and export dependence transmit the shock; reserves and current-account surpluses absorb much of it." }, { "region": "south-asia", "exposure": "High", "rationale": "Low reserves, large refinancing needs and dependence on imported fuel paid for in foreign currency." }, { "region": "gulf-middle-east", "exposure": "Medium", "rationale": "Sovereign funds take valuation losses and oil revenue falls; reserves cover the exporters but not the importers of the region." }, { "region": "africa", "exposure": "High", "rationale": "International bond market access closes, trade finance is withdrawn and creditor groups are divided." }, { "region": "latin-america", "exposure": "High", "rationale": "Currency depreciation, lower commodity prices and foreign-currency debt arrive together." }, { "region": "russia-eurasia", "exposure": "Medium", "rationale": "Commodity revenue falls; Central Asian borrowers are exposed, while Russia is already largely outside Western funding markets." } ], "indicators": [ { "name": "Cyclically adjusted price to earnings ratio for US equities", "source": "Robert Shiller, Yale University, online data", "threshold": "above 35", "cadence": "monthly" }, { "name": "US high-yield corporate bond spread", "source": "ICE BofA US High Yield Index option-adjusted spread, published by the Federal Reserve Bank of St. Louis (FRED)", "threshold": "above 800 basis points", "cadence": "daily" }, { "name": "Emerging-market sovereign bond spreads", "source": "J.P. Morgan EMBI Global Diversified", "threshold": "ten or more sovereigns above 1,000 basis points", "cadence": "daily" }, { "name": "Cross-border bank claims", "source": "BIS locational banking statistics", "threshold": "contraction of more than 10 per cent over four quarters", "cadence": "quarterly" }, { "name": "Commercial bank deposits and borrowings", "source": "Federal Reserve H.8 statistical release", "threshold": null, "cadence": "weekly" }, { "name": "Use of central bank dollar swap lines", "source": "Federal Reserve H.4.1 statistical release", "threshold": "outstanding swaps above US$100 billion", "cadence": "weekly" }, { "name": "Commercial property prices", "source": "BIS commercial property price statistics", "threshold": "fall of more than 20 per cent from peak in two or more major economies", "cadence": "quarterly" }, { "name": "Sovereign gross financing needs", "source": "IMF Fiscal Monitor", "threshold": "above 15 per cent of GDP for an emerging-market borrower", "cadence": "twice a year" } ], "compounds": { "triggers": [ { "id": "S05", "note": "Disputes over loss allocation and spending cuts can produce a contested transfer of power in a nation that has lost market access." }, { "id": "S01", "note": "Governments respond to the recession with tariffs, capital restrictions and preference for domestic suppliers." }, { "id": "S11", "note": "A cluster of sovereign defaults creates the pressure for a common creditor framework." }, { "id": "S13", "note": "Shared financial distress has prompted cooperation between the two before" } ], "triggered_by": [ { "id": "S01", "note": "Loss of critical inputs and export markets reprices exposed equities and credit." }, { "id": "S03", "note": "A war that closes a sea route raises energy prices and risk premia together." }, { "id": "S09", "note": "Loss of confidence in digital signatures interrupts payments and settlement and prompts withdrawals." }, { "id": "S10", "note": "A pandemic stops activity and produces a rush for cash, as in March 2020." }, { "id": "S05", "note": "Only where the nation is a reserve-currency issuer or a major financial centre." }, { "id": "S07", "note": "Only where the core is a global financial centre. Elsewhere the effect is a wider spread for one sovereign." }, { "id": "S08", "note": "Revenue shortfalls, arrears among professional households and a repricing of labour-intensive services firms weaken sovereign and credit positions." }, { "id": "S15", "note": "if hydrocarbon assets and exporter sovereign debt are repriced abruptly" }, { "id": "S19", "note": "longevity revisions add to the pension liabilities of ageing sovereigns; a contributing pressure, not a cause alone" } ], "amplified_by": [ { "id": "S08", "note": "Displacement of professional employment raises household and commercial property defaults." } ], "triggered_by_other": [], "amplifying_trends": [ "Stretched asset valuations", "Non-bank finance growth", "Bank funding & deposit mobility", "Sovereign debt & interest burden", "Sovereign creditor fragmentation", "Capital concentration in AI", "Commercial property repricing", "External liquidity buffer requirements" ] }, "open_questions": [ "Whether one record can serve both the global event and its national face, or whether the single-nation sovereign funding crisis needs its own likelihood as an idiosyncratic event.", "Whether Standard Severe should assume that the major central banks are free to ease, or should carry the inflationary case in which they are not.", "How to treat nations with closed capital accounts, where regional exposure is rated High but the funding channel is weak.", "Whether 'several governments' should be fixed as a number. The record uses eight, which the specification does not state." ], "commentary": null, "overview": { "source": "model-panel-v0.5", "lenses": { "political": "The central dispute is **who bears the losses**: bank creditors, taxpayers or foreign lenders. Governments that guarantee all bank liabilities weaken their own credit.", "economic": "Global equities fall **40 per cent** and cross-border private lending contracts by a quarter. Funding markets stay impaired for nine months.", "social": "Unemployment rises. Where the state loses market access, **public salaries are paid late** and fuel and medicines are rationed.", "technological": "Deposits leave through mobile applications within hours. **Data-centre and venture financing** contracts, while payment and settlement systems must keep operating.", "legal": "**Resolution regimes** and deposit insurance limits decide where losses fall. Divided creditor groups slow sovereign restructuring.", "environmental": "Commodity demand and prices fall. **Clean energy and adaptation projects** lose financing as lenders withdraw from long-dated assets." }, "regions": { "north-america": "**Origin of the repricing** in technology and commercial property. Central bank purchases and swap lines keep core dollar markets working.", "europe": "Banks hold property loans and **domestic government debt**. High-debt members face the widest spreads.", "china": "**Property and local government debt** losses deepen and export demand falls. Capital controls limit outflows.", "indo-pacific": "Open capital accounts transmit the shock, but **reserves and surpluses** absorb much of it.", "south-asia": "**Low reserves** and large refinancing needs. Foreign currency for fuel and medicines runs short.", "gulf-middle-east": "Sovereign funds take valuation losses and oil revenue falls. **Reserves protect the exporters**, not the importers of the region.", "africa": "**Bond market access closes** and trade finance is withdrawn. Divided creditors delay restructuring.", "latin-america": "**Depreciation and lower commodity prices** arrive together and raise the cost of foreign-currency debt.", "russia-eurasia": "**Commodity revenue falls**. Central Asian borrowers are exposed; Russia is largely outside Western funding markets." }, "evolution": { "lead_indicators": "US equities exceed 35 times cyclically adjusted earnings and **commercial property prices** fall more than 20 per cent from peak. High-yield spreads pass 800 basis points.", "triggers": "Large technology companies cut data-centre spending plans and lenders mark down office and data-centre loans. The **repricing of technology and commercial property** starts withdrawals from leveraged funds.", "immediate": "Within ten days private credit funds suspend redemptions and exposed banks lose **a fifth of deposits in two working days**. Global equities fall 40 per cent within weeks.", "post_immediate": "Cross-border private lending contracts by a quarter over two quarters and trade finance is cut. Vulnerable sovereign spreads rise 500 basis points and **eight governments lose market access**.", "stabilisation": "Funding markets stay impaired for **nine months**, until investment-grade issuance resumes. By then unemployment in advanced economies is three percentage points higher and technology investment a third lower.", "long_term": "Governments that guaranteed all bank liabilities spend **years servicing the cost**. Divided creditors slow debt restructuring and central banks are pressed to hold more government debt." } }, "history": [ { "edition": 2027, "rank": 2, "L2y": 3, "L10y": 4, "impact_systemic": 4, "impact_national": 4, "confidence": "medium" } ], "changelog": [ { "version": "0.5.0", "date": "2026-10-09", "change": "Rebuilt in the second pass from Global financial crisis: the seizure is specified to reach sovereign borrowers and absorbs the first-pass sovereign funding crisis; onset moved from days to weeks, the equity fall set at 40 per cent and each rating lowered by one step." } ], "citation": "GINC (2027). Scenario S02 A global funding seizure reaches sovereign balance sheets, Scenario Library v0.5. scenarios.ginc.org/scenarios/global-funding-seizure" }