How ‘resilience’ became global finance’s mirage of strength
The borrowed metaphor now obscures more than it explains
SINCE the 1997 Asian financial crisis, stability – macro-financial stability, more broadly – has been the primary objective of global finance, shaping the work of central banks, finance ministries, the International Monetary Fund (IMF) and the Financial Stability Board (FSB). Today, “resilience” has taken its place.
Authorities no longer promise to prevent crises; they promise to survive them. This linguistic shift reflects a profound institutional change: “resilience” has become the system’s governing principle without acquiring operational meaning.
The usage pattern is unmistakable. The Bank of England’s Financial Stability Report mentioned “resilience” eight times in 2015; by November 2024, the term had become the dominant theme in the text.
The IMF’s October 2024 Global Financial Stability Report centres on “enhancing resilience”. The FSB frames monitoring around “the resilience of non-bank financial intermediation”, while the Bank for International Settlements’ Quarterly Reviews assess “market resilience”.
While stability prevails in institutional titles, resilience prevails in policy content. This shift influences the oversight and allocation of around US$470 trillion in global financial assets. This has structural implications and affects public accountability.
Origins
Resilience entered economics from ecology. In 1973, CS Holling distinguished between engineering resilience (returning to equilibrium) and ecological resilience (adapting to new states).
Finance imported the term without clarifying which interpretation applied. The ambiguity permits policymakers to invoke whichever meaning suits their immediate needs.
As resilience migrated into policy, authorities shifted from promising prevention to pledging endurance.
Stability was measured through capital ratios, liquidity coverage and default probabilities. Resilience has no agreed equivalent.
Three levels of analysis rarely align. Balance-sheet resilience refers to buffers that maintain solvency – measurable but procyclical when firms retrench simultaneously.
System-level resilience depends on network structures and common exposures that individual metrics cannot capture.
Macroeconomic resilience refers to the economy’s ability to absorb and recover from shocks – often in contrast to micro-prudential tightening. When these three levels diverge, policy signals cancel out.
The conceptual problem
The result is definitional chaos. One assessment praises “macroeconomic resilience”, while another warns of “financial vulnerabilities”.
A third evaluates “operational resilience”, a fourth assigns “sovereign resilience” scores: four assessments, four methodologies, no reconciliation.
The theoretical contradiction runs deeper. Holling’s framework recognises that resilience at one level requires disruption at another – forest health needs periodic fires. Finance demands resilience at all levels simultaneously.
When institutions collectively raise buffers, credit intermediation contracts are established. Individual prudence generates systemic fragility. Japan’s experience – decades of capital strengthening alongside credit stagnation – exemplifies this paradox.
Measurement failures
Silicon Valley Bank exposed the measurement gap. Prevailing frameworks modelled resilience to credit losses, not digital-speed deposit runs.
Although the Federal Reserve described the system as “sound and resilient”, US authorities intervened on systemic risk grounds, explicitly invoking the need to protect banking system resilience – defined by capital and liquidity buffers, but tested by velocity and contagion.
The UK’s 2022 liability-driven investment crisis provides another case. Pension funds deemed resilient required £65 billion (S$111.4 billion) in emergency Bank of England intervention to prevent gilt market collapse.
Shadow banking compounds measurement problems. Non-bank financial intermediation (NBFI) exceeds US$70 trillion. Banks’ NBFI exposures represent significant regulatory capital shares, yet resilience frameworks remain bank-centric. We measure where we regulate, not where risks concentrate.
Other disciplines define resilience operationally. Cybersecurity specifies recovery time objectives against defined threats. Climate adaptation identifies tolerance thresholds for specific hazards.
Finance demands resilience to all shocks at all levels – an impossible standard.
“Authorities once promised stability through measurable standards. Today, they promise resilience without operational definitions.”
Systemic consequences
Treating resilience as a goal rather than a condition creates impossible economics. Every buffer carries a cost.
When capital conservation restricts credit extension and universal guarantees weaken market discipline, what builds balance-sheet resilience undermines macroeconomic resilience.
The pandemic exposed these contradictions. Governments and central banks deployed US$10 trillion to support markets. Authorities presented this as “proof of resilience”.
Yet, requiring unprecedented intervention reveals fragility, not strength. Taxpayers absorbed losses, while institutions claimed resilience.
Emerging markets face material consequences. Credit ratings based on divergent “resilience assessments” determine borrowing costs. Citizens encounter promises of “economic resilience” without specification – employment protection, price stability or crisis management capacity?
Democratic oversight requires measurable objectives. When authorities redefine success retrospectively, accountability disappears.
Operational requirements
The problem is conflation.
Balance sheets require soundness – micro-prudential and static. Systems require stability – macro-prudential and dynamic. Economies require adaptation – structural and evolutionary.
Merging these concepts creates confusion.
Progress requires three changes. First, establish definitions with corresponding metrics for each level.
Second, acknowledge trade-offs: individual soundness may compromise systemic stability; systemic stability may impede economic adaptation.
Third, recognise that adaptation requires accepting controlled failures, not preventing all disruptions.
Systemic risk, not semantic
Genuine resilience measurement would specify recovery timeframes (hours or days, not indefinite), functional degradation tolerances (acceptable service reductions), scenario specifications (defined stresses, not general disruption) and, finally, explicit trade-offs (growth sacrificed for stability).
Authorities once promised stability through measurable standards. Today, they promise resilience without operational definitions. With US$470 trillion in global financial assets governed by undefined principles, the risk is not semantic but systemic.
The question facing policymakers is whether analytical discipline can separate what convenience has conflated. Until resilience gains definition, measurement and boundaries, it remains a vocabulary that masks uncertainty while risks accumulate. OMFIF
The writer is a visiting professor at the National Council of Applied Economic Research, senior non-resident adviser at the Bank of England, senior adviser of the International Forum for Sovereign Wealth Funds, and distinguished fellow at the Observer Research Foundation America
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