IMF Warns 110 Banks Holding 22% of Global Banking Assets Face Stress-Test Risks

The International Monetary Fund (IMF) has warned that 110 banks holding approximately 22% of global banking assets could fall below capital adequacy thresholds under a severe hypothetical financial stress scenario. The findings, published in the IMF’s October 2026 Global Financial Stability Report, point to vulnerabilities that could become more significant if an artificial intelligence investment slowdown, rising government bond yields and energy-market shocks hit financial markets simultaneously. The number of banks identified as weak under the scenario increased from 88 in the IMF’s 2025 stress test, when the affected institutions represented 18% of global banking assets.

The IMF emphasised that the global banking system remains resilient overall, including under the severe scenario examined in its analysis. However, the growing share of banking assets associated with institutions that could have inadequate capital buffers under stress has raised concerns about how financial shocks might spread. The report also highlights risks outside traditional banking, including leverage in AI-related investments, vulnerabilities among non-bank financial institutions and cyberattacks that could disrupt critical financial services. The findings describe a hypothetical stress outcome, not a prediction that 110 banks will fail.

Key Takeaways

• 110 banks identified: The IMF’s stress test found that 110 banks could fall below relevant capital thresholds in a severe hypothetical downturn.
• 22% of global banking assets: These institutions collectively account for approximately 22% of global banking assets.
• Worsening stress-test result: The corresponding figures in the 2025 exercise were 88 banks and 18% of global banking assets.
• Three major shock channels: The scenario examined risks involving an AI investment slowdown, bond-market stress and energy-related pressures.
• Banking system remains resilient: The IMF said banks as a whole remained resilient under the severe scenario, although a weaker group could be undercapitalised.
• AI investment risk: A correction in AI-related markets could reduce wealth, slow investment and increase financial-market volatility.
• Non-bank vulnerabilities: Insurance companies, pension funds, private-credit markets and hedge funds could amplify financial stress through leverage and liquidity pressures.
• Policy priority: The IMF is calling for stronger financial oversight, sustainable public debt, improved cybersecurity and closer monitoring of system-wide risks.

What the IMF’s 110-Bank Warning Means

The IMF’s finding is based on a stress test designed to assess how banks might perform under an adverse combination of economic and financial shocks. The exercise examines whether banks would retain adequate capital to absorb losses if conditions deteriorated sharply.

Under the scenario, 110 banks could have capital ratios below a threshold of 7%, or a higher threshold applicable to the world’s most complex banks. Together, these institutions account for approximately 22% of global banking assets.

The corresponding result in the 2025 stress test was 88 banks, representing 18% of global banking assets. The increase indicates that a larger portion of the banking system could face capital pressure under the latest hypothetical scenario.

Stress-test indicator	2025 exercise	2026 exercise
Banks identified as weak under stress	88	110
Share of global banking assets represented	18%	22%
Scenario focus	Severe hypothetical financial stress	AI, bond-market and energy-related shocks
Interpretation	Potential capital vulnerability under stress	Larger share of banking assets exposed to potential capital weakness

Source: IMF analysis reported in its October 2026 Global Financial Stability Report and by Reuters and Moneycontrol. Figures describe stress-test outcomes, not actual bank failures.

The distinction between a stress-test result and an actual financial crisis is important. A bank falling below a specified capital threshold in a modelled scenario does not mean it is currently insolvent or unable to meet its obligations.

Stress tests deliberately examine difficult conditions to identify where losses could become problematic. Their purpose is to help regulators and financial institutions understand vulnerabilities before a crisis occurs.

The results also depend on the assumptions used in the exercise. The IMF noted that its annual scenarios reflect risks considered relevant at the time, while applying a common methodology to facilitate comparison.

What Is a Bank Capital Buffer?

Bank capital is the financial cushion that helps a lender absorb losses without immediately threatening depositors or other creditors. It consists of qualifying financial resources that can absorb losses when borrowers default, investments decline in value or other risks materialise.

Capital adequacy ratios compare a bank’s qualifying capital with its risk-weighted assets. Risk-weighted assets assign different weights to exposures depending on their assessed risk, rather than treating every loan or investment identically.

A bank with a stronger capital position generally has more capacity to absorb losses before breaching regulatory requirements. A bank with a thinner capital cushion has less room to withstand a sudden deterioration in asset quality or market conditions.

Why the 7% Threshold Matters

The IMF’s stress-test finding refers to banks whose capital ratios could fall below 7%, or a higher threshold for certain systemically important banks, under the modelled scenario.

Systemically important banks are institutions whose distress could have wider consequences because of their size, interconnectedness, complexity or role in the financial system. They can face additional capital requirements intended to strengthen their ability to withstand shocks.

A bank falling below a stress-test threshold may need to conserve capital, reduce risk-weighted assets, raise new capital or adjust its business strategy. The appropriate response would depend on the institution’s actual financial position and the regulatory requirements that apply.

The IMF’s warning therefore concerns the capacity of some institutions to absorb losses during a severe downturn. It does not establish that all 110 banks currently have inadequate capital or that they will necessarily need emergency support.

How an AI Investment Slowdown Could Affect Banks

One of the IMF’s main concerns is the possibility that investment in artificial intelligence could slow if the financial returns from AI products and infrastructure fall short of expectations.

AI has become a major source of investment in computing hardware, data centers, electricity infrastructure, networking equipment and software. Large technology companies and other businesses have committed substantial resources to building and deploying AI systems.

These investments have supported demand for technology suppliers and contributed to optimism in financial markets. However, the IMF warned that the scale of investment could be vulnerable if companies discover that they need less computing capacity than anticipated or cannot generate the expected economic gains.

From AI Market Correction to Financial Stress

A sharp decline in AI-related valuations could affect banks through several channels.

First, falling share prices can reduce household and institutional wealth. If investors suffer losses, they may cut spending or reduce other investments, potentially affecting economic activity.

Second, companies may reduce capital expenditure if expected returns on AI projects deteriorate. That could affect suppliers, data-center developers and businesses that depend on continued technology investment.

Third, losses can become more disruptive when investments are financed with borrowing or other leveraged arrangements. Investors facing losses may be forced to sell assets to meet margin requirements or repay debt, potentially pushing prices down further.

The IMF has warned that leverage in the AI sector could amplify a correction by increasing forced selling and market volatility.

Reuters reported that large cloud-computing companies known as hyperscalers accounted for 10% of global investment-grade bond issuance, up from less than 1% in 2024. This illustrates the growing connection between AI-related infrastructure spending and broader corporate debt markets.

The exposure does not mean that every technology company or AI investment is vulnerable to failure. It does, however, show why a significant change in AI spending could have consequences beyond the technology sector.

Rising Government Bond Yields Add Another Risk

The IMF also identified rising government bond yields as a potential source of financial stress. Yields have faced pressure from higher energy prices, inflation concerns, large government borrowing requirements and unresolved fiscal deficits in major economies.

Government bonds are important to financial markets because they provide benchmarks for pricing other assets and borrowing costs. Banks, insurers, pension funds and investment funds hold government securities for liquidity, investment and risk-management purposes.

When bond yields rise, existing fixed-rate bonds generally fall in market value. The effect on an individual financial institution depends on the maturity of its holdings, accounting treatment, hedging arrangements and whether it needs to sell assets.

Why Higher Yields Can Pressure Banks

Banks can face several effects when yields rise sharply.

• Investment losses: The market value of existing bonds can decline.
• Funding costs: Banks may need to pay more to attract deposits or raise wholesale funding.
• Borrower stress: Higher interest rates can make loans more expensive to service for households and businesses.
• Credit risk: If borrowers struggle to repay debt, banks may face higher provisions and losses.
• Liquidity pressure: Institutions that need cash may have to sell assets at unfavourable prices.

Not every bank will experience all these effects to the same degree. Banks differ in their balance-sheet structure, funding models, capital positions and interest-rate exposure.

The IMF warned that the volume of government and private-sector debt issuance could test the market’s ability to absorb new securities, particularly as central banks reduce their balance sheets and investors become more price-sensitive.

If demand for new debt weakens, borrowers may have to offer higher yields to attract buyers. That could increase financing costs across the economy and intensify pressure on financial institutions and indebted companies.

Energy Prices Could Compound the Pressure

Higher energy prices form another part of the IMF’s risk assessment. Energy shocks can increase inflation, raise business operating costs and reduce the purchasing power of households.

For banks, the effects are largely transmitted through their borrowers and financial markets. Companies facing higher fuel, electricity and transport costs may experience weaker margins. Households may have less money available to service loans after paying for essential expenses.

If these pressures persist, some borrowers may become more likely to miss repayments. Banks could then face rising credit losses at the same time that bond-market volatility or weaker economic growth is putting pressure on other parts of their balance sheets.

Energy shocks can also complicate monetary policy. Central banks may find it harder to lower interest rates if inflation remains elevated, even when economic growth weakens.

The IMF’s scenario brings these risks together to examine how a combination of shocks could affect bank capital. The result is intended to reveal vulnerabilities that might be less visible when each risk is considered separately.

Non-Bank Financial Institutions Could Amplify a Crisis

The IMF’s warning extends beyond conventional banks. Non-bank financial institutions, or NBFIs, include organisations such as insurance companies, pension funds, investment funds and private-credit providers.

These institutions play important roles in financing businesses, managing savings and providing investment services. However, their activities can also create vulnerabilities if they use leverage, hold illiquid assets or depend on short-term funding to support longer-term investments.

Insurance Companies and Pension Funds

Insurance companies and pension funds often invest in assets intended to generate returns over long periods. Some of those assets may be difficult to sell quickly without accepting a discount.

During a period of market stress, these institutions may face pressure to meet cash needs, rebalance portfolios or respond to losses. If many institutions attempt to sell similar assets at the same time, market prices can fall further.

Banks may be affected because they lend to these institutions, provide derivatives and other financial services, or hold exposures linked to the same markets.

Private Credit and Hedge Funds

Private-credit markets provide loans outside traditional public bond markets and bank lending channels. The sector has expanded as investors seek returns and companies look for alternative sources of finance.

The IMF has highlighted leverage and liquidity pressures in private credit as potential vulnerabilities. If funding becomes more difficult to obtain or borrowers experience financial stress, lenders may face losses or restrict new lending.

Hedge funds can support market liquidity, but leverage and crowded investment positions can also amplify volatility. If several funds hold similar positions and attempt to reduce exposure simultaneously, forced selling can put pressure on asset prices.

The central concern is the interaction between financial institutions. A shock originating outside the banking sector can still affect banks through lending relationships, derivatives, shared investments and funding markets.

Cyberattacks Pose a Growing Financial Stability Risk

Cybersecurity is another major concern in the IMF’s October report. Financial institutions depend on technology providers, cloud services, payment networks and interconnected systems to process transactions and manage customer accounts.

A cyber incident affecting one critical provider can disrupt multiple institutions at once. This creates a risk that extends beyond an individual bank’s own security systems.

The IMF reported that in more than 70% of software vulnerability cases so far in 2026, providers had almost no time to patch vulnerabilities before they were exploited. That was a 20-percentage-point increase from a year earlier, according to Reuters’ reporting on the report.

Artificial intelligence can help defenders detect threats and analyse security information, but it can also help attackers discover vulnerabilities or make attacks more sophisticated.

Why Third-Party Technology Providers Matter

Financial institutions often rely on a relatively small number of technology vendors for important services. These relationships can improve efficiency and access to specialised capabilities, but they can also create concentration risk.

If a shared provider suffers a major outage or cyberattack, multiple banks and financial businesses may be affected at the same time. Even institutions with strong internal security could experience disruption if a critical external service becomes unavailable.

The IMF has called for stronger cybersecurity capacity and closer oversight of third-party technology vendors. Financial institutions may also need to improve incident response, recovery planning, information-sharing and system-wide testing.

The goal is not to eliminate every cyber risk, which is unlikely to be possible, but to reduce the likelihood that a single incident causes widespread financial disruption.

What the Warning Means for the Global Economy

The IMF’s stress-test findings arrive at a time when global financial markets have remained relatively resilient despite geopolitical uncertainty, high public debt and changing investment patterns.

That resilience is partly supported by economic growth and corporate earnings. However, the IMF cautioned that strong current performance should not be confused with the absence of vulnerabilities.

If an AI-market correction, a sharp increase in bond yields or a major cyberattack occurred, existing weaknesses could magnify the initial shock. The resulting effects could include tighter lending conditions, reduced investment, lower asset prices and pressure on economic activity.

A financial shock does not need to originate in a bank to affect the banking system. Losses at non-bank institutions, falling collateral values or disruptions to critical technology providers can move through the network of financial relationships.

For businesses, a banking-sector shock could make credit more expensive or harder to obtain. For households, it could affect borrowing costs, investment portfolios and confidence. For governments, a weaker economy and higher financing costs could complicate fiscal planning.

These are potential transmission channels rather than guaranteed outcomes. The IMF’s analysis is intended to help policymakers identify where the financial system might be most vulnerable before an adverse event occurs.

What Regulators and Banks Can Do

The IMF has urged policymakers to strengthen financial-system resilience before new shocks emerge. Its recommendations include maintaining sound public finances, monitoring financial institutions closely and improving cybersecurity.

Banks can strengthen their resilience by maintaining appropriate capital and liquidity buffers, evaluating their exposure to interest-rate movements and testing how their portfolios would perform under severe economic conditions.

Regulators can use stress tests to identify institutions that may need additional capital, improved risk controls or closer supervision. They can also examine the connections between banks and non-bank financial institutions to better understand how stress could spread through the system.

Cybersecurity requires a coordinated approach because attacks on shared providers can affect multiple institutions. Better information-sharing, contingency planning and oversight of technology vendors can reduce the risk of a local incident becoming a wider disruption.

The IMF also emphasised the importance of putting public debt on a sustainable path. Governments with large borrowing requirements may have less flexibility to respond to a crisis, particularly if higher yields increase the cost of servicing existing debt.

The Bigger Picture

The IMF’s finding that 110 banks representing 22% of global banking assets could face weak capital levels under a severe stress scenario highlights the importance of examining the financial system as a connected whole. Banks may appear resilient individually, but their exposure to common markets, borrowers, funding sources and technology providers can create vulnerabilities when several shocks occur together.

The increase from 88 banks and 18% of global banking assets in the 2025 exercise suggests that the latest scenario exposes a larger share of the system to potential capital pressure. Yet the result remains a modelled outcome, not a forecast of imminent failures. The IMF’s broader message is that policymakers should use the period of relative resilience to strengthen safeguards before market stress intensifies.

AI investment, sovereign debt and cyber risk are different challenges, but each can affect confidence, liquidity and the ability of financial institutions to absorb losses. Their combined impact makes capital adequacy, risk management, cybersecurity and oversight of non-bank institutions increasingly important to global financial stability.

Looking Ahead

The next indicators to watch include bank capital and liquidity disclosures, developments in AI-related investment and borrowing, government bond yields, energy prices and cyber incidents affecting financial institutions or shared technology providers. Regulators will also be monitoring leverage and liquidity risks among private-credit firms, insurers, pension funds and hedge funds. These developments will help determine whether the vulnerabilities identified by the IMF remain contained or become more consequential.

For banks and policymakers, the priority is to ensure that financial institutions can withstand losses without disrupting essential lending and payment services. The IMF’s stress test provides a warning about potential weaknesses, not a prediction that the 110 banks will fail. The ultimate test will be whether institutions and regulators strengthen resilience before an adverse combination of shocks occurs.