**1. Introduction**

A common thread of past financial crises is that they all occur following a period of (expost) exaggerated economic optimism characterized by rapid credit expansion against a backdrop of underdisciplined fiscal/monetary policies and lax regulatory institutions. The credit expansion is accompanied by high investments, high economic activity, and increased prices in assets and real estate markets. In the absence of sufficiently large economic or political shocks, this happy state may last for a while.

However, when an unanticipated adverse shock materializes, lenders stop lending and demand immediate repayment on short-term loans triggering default, panic, contagion, and ultimately runs also on some solvent institutions. This leads to violent reversals in asset markets and contraction in real economic activity. The mechanisms through which this process materialized in past crises differ depending on a country's institutions, level of development, depth of the capital market, structure of the banking system exchange rate arrangements, inflation differentials, central bank independence, and political stability.

The chapter discusses current challenges to world financial stability in light of the lessons that have been learned from past financial crises, such as the global financial crisis (GFC), and some of the older crises in Asia, Latin America, and Russia. Although there are parallels between the current situation and some of the buildup toward those previous crises, the current situation differs in several important respects. First, it comes after a decade of extremely low nominal and real interest rates along with subdued inflation. Second, due to fiscal and monetary policy measures deployed during the GFC and the COVID-19 pandemic, debt/GDP ratios and central banks (CBs) balance sheets are at historically high levels. The recent upsurge of inflation (due to both supply and demand factors) prompted a worldwide process of increase in policy interest rates and a gradual reduction in CB assets. Those policy trends are likely to intensify over the foreseeable future. An undesirable side effect of this process is that it may trigger several mechanisms that endanger world financial stability.

Recent developments in Fintech and the global economic disruptions caused by the war in Ukraine create novel financial vulnerabilities that differ from those of previous financial crises. The rapid growth of fintech institutions in banking and other financial intermediaries poses new regulatory challenges at the national and international levels, and none of the previous crises was triggered by war. Although no crisis has materialized as of yet (July 2022), those developments have increased the odds of a systemic global crisis.

The chapter is organized as follows: Section 2 describes the major financial crises in the post-World War II (WW-II) period. Section 3 draws lessons from those crises for the future, and Section 4 discusses the new risks created by the recent acceleration in the growth of fintech, by the reduction in world trade and rising commodity prices due to the Russian invasion of Ukraine, and the rise of Chinese overseas lending for global financial stability. This is followed by concluding remarks.
