How large is financial stress?
The current financial crisis in advanced economies is unique in its depth, breadth, and impact. It has rapidly engulfed all parts of the global financial system (banks, securities, and exchange markets) and has already lasted longer than any systemic stress episode since the 1980s. By the end of 2008 virtually all advanced economies were experiencing financial stress at crisis levels. As a result, financial stress in emerging economies also reached unprecedented levels. It spread quickly to all major emerging regions and multiplied through all parts of the financial sector. On average, the intensity of stress surpassed levels seen during the Asian crisis (see Chart 1). How does stress get transmitted? According to our research, stress in emerging economies moves almost one-for-one with stress in advanced economies. The transmission is rapid and occurs within one or two months after advanced economies experience financial stress. But there is significant cross-country variation in the t
