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Tighter global financial conditions, along with high debt levels and ongoing geopolitical threats are threatening to reveal vulnerabilities in the global financial system, warns the Financial Stability Board (FSB) in a letter to the G20 leaders.

Ahead of the G20 leaders summit next week, Nov. 15-16, the FSB warned that “global financial stability should not be taken for granted.”

The global policy group said that over the past year, economic and financial market conditions have shifted to the point that any cracks in the financial system could be exposed.

“The return of inflation to levels not seen in decades has resulted in a strong interest rate response and significantly tighter financial conditions. The tightening is occurring amidst record-high levels of debt of non-financial corporates, households and governments globally, and in a global financial system where the provision of finance through non-banks has become as important as bank credit,” it said.

While the global financial system has, so far, proven resilient under these tougher conditions, “there is no room for complacency,” it cautioned.

“The challenges that lie ahead make global cooperation on financial stability matters as important now as it was after the global financial crisis,” it said.

To that end, the group indicated that it will be proposing reform to address systemic risk in the shadow banking sector at the upcoming summit.

And, in the year ahead, the FSB said that it will step up its surveillance for possible hidden sources of leverage in the sector, among other risks.

It also said that it will be taking steps to “tackle liquidity mismatches in investment funds and ensure better preparedness of market participants for sudden spikes in demand for liquidity.”

At the same time, the FSB said that it will also be delivering its scenario analysis of climate-related financial risks, and targets for enhancing cross-border payments.