News 13/11/25

Scenario thinking crucial for capital market stability

Geopolitical tensions, technological dependencies and financial innovation make the financial sector vulnerable. Although shocks have been well absorbed so far, this resilience cannot be taken for granted. Capital markets are becoming increasingly intertwined, which increases systemic risks, while beliefs are shifting. This calls for a different approach. In its report Thinking in scenarios in capital markets, the Netherlands Authority for the Financial Markets (AFM) calls on market participants, policymakers and regulators to actively embrace scenario thinking.

In short

Interconnectedness increases systemic risks
Scenarios reveal vulnerabilities
Working together for robust capital markets

Interconnectedness increases systemic risks

Capital markets are complex and highly intertwined. Stress is not caused by a single error, but by collective behavior and dependencies. Incidents such as the COVID-19 shock and the LME nickel incident show how quickly robust systems can collapse.

Scenarios reveal vulnerabilities

The traditional approach with static structures remains valuable but falls short in an unpredictable world. Risk management requires imagination: scenario thinking is not about predicting the future, but about imagining impactful futures. This reveals hidden risks. Using an example scenario - in which loss of confidence in the dollar, cyber-attacks and risks associated with stablecoins converge - the AFM shows how vulnerabilities can accumulate and put pressure on European market infrastructure.

Working together for robust capital markets

The AFM calls for action: market participants, regulators and policymakers must embed scenario thinking in supervision, strategy and risk management. We are engaging in dialogue with the sector about the scenarios we need to prepare for and are advocating for European supervision that takes a system-wide view. Only by working together can we identify risks at an early stage, limit crises and strengthen confidence in European capital markets in a sustainable manner.