capacity of foreign households, businesses, and governments. collectively, these factors could lead to pronounced losses among global financial intermediaries and a consequent reduction in the credit supply. in china, a further slowdown in economic growth could worsen financial stresses. many chinese firms, especially in the property sector, are struggling to service very high - 9debt burdens. local governments are also facing increasing fiscal strains. stresses originating in china could spill over to other emerging market economies ( emes ), particularly those highly dependent on trade with china or on credit provided by chinese entities. the spillovers could trigger significant capital outflows from emes, which may already be more susceptible to external shocks given generally heightened debt levels. given the size of its economy and financial system, financial stress in china could be propagated to global markets more broadly through disruptions to economic activity, deterioration of risk sentiment, and a sharp appreciation of the dollar. last but not least, a worsening of global geopolitical tensions, including those involving russia, the middle east, and china, could lead to broad negative spillovers to global markets. russia ’ s ongoing war against ukraine continues to weigh on many economies in a variety of ways, including sustained disruptions to regional trade in food, energy, and other commodities. the conflict in the middle east could generate further risks to energy and financial markets, as well as a worsening of global humanitarian and migration challenges. more broadly, escalation of geopolitical tensions could lead to lower economic activity and increased fragmentation of global trade flows and financial intermediation, raising financing and production costs and contributing to more sustained supply chain challenges and inflationary pressures. the global financial system could be affected by a pullback from risk - taking, declines in asset prices, and losses for exposed businesses and investors. i will conclude by saying that we must remain vigilant to potential shocks that could exacerbate vulnerabilities in the global financial system. thank you for inviting me to speak here. i look forward to participating on the panel. financial stability : resilience and challenges lisa d. cook member board of governors of the federal reserve system central bank of ireland november 8, 2023 the views expressed here are my own and do not reflect those of the board of governors or the federal open market committee

not possible to understand how stress in one part of the network may spread and affect the entire system. networks that are more interconnected are inherently more complex than those in which market participants have fewer links to one another, and complexity can exacerbate the kinds of coordination problems highlighted by diamond and dybvig and by freixas, parigi, and rochet. of course, “ complexity ” is difficult to define in a completely systematic and satisfactory manner, but one way emphasized in recent work by hyun song shin is to consider the number of links required to connect savers to borrowers. 10 shin ’ s analysis of interconnectedness among financial institutions is based on the idea that the ultimate amount of lending and borrowing that can occur in an economy is determined by economic fundamentals such as income growth, which change only slowly over time, whereas interbank claims can grow or contract far more quickly. of course, claims within the entire financial system net out to zero, but they do affect the leverage of the institutions involved. in shin ’ s model, financial institutions seek to take on more leverage during a boom, when banks have strong capital positions and risks are perceived to be low, but can increase leverage, in the aggregate, only by borrowing and lending more intensively to each other. this causes the resulting network of intertwining claims to extend further and further. conversely, when fundamental conditions or market sentiments change and financial institutions prefer to shed risk, they can deleverage in the short term only by withdrawing credit from one another. such deleveraging can be particularly destabilizing in longer intermediation chains as debt claims that are called by one financial intermediary to shore up its own assets adversely affect the liability sides of other institutions ’ balance sheets. as deleveraging accelerates and more and more financial institutions hoard liquidity, other institutions may become concerned that their own funding may dry up and may preemptively withdraw funding from others. fundamentally strong institutions are forced to liquidate assets at fire sale prices, which results in more deleveraging and instability. more - complex network structures are likely to be more opaque than less complex ones. for example, as the number of intermediaries standing between borrowers and lenders grows, it becomes increasingly difficult to understand how one member of the network fits into the overall system. the well - publicized difficulties that some mortgage borrowers have had in simply figuring out who owns their mortgages