WASHINGTON - Major geopolitical risk events, including trade tensions, can trigger large corrections in stock prices, the International Monetary Fund (IMF) said in a report on Monday.

That in turn can generate market volatility which can threaten financial stability, it said in a chapter from its forthcoming Global Financial Stability Report.

The IMF did not mention specific events, such as the sweeping tariffs US President Donald Trump has announced in recent weeks. But it noted that news-based measures of risk, including conflicts, wars, terrorist attacks, military spending and trade restrictions had increased sharply since 2022.

READ MORE: Top US bank leaders warn of risks from trade tensions

In an accompanying blog, the IMF urged financial institutions to hold enough capital and liquidity to help them deal with potential losses from geopolitical risks, and urged them to use stress tests and other analyses to identify and manage such risks.

In its report, the IMF said its research had shown that big risk events such as wars, diplomatic tensions or terrorism sent stock prices down an average 1 percentage point monthly across all countries, with the average drop for emerging markets 2.5 percentage points.

International military conflicts were the most significant risk events, pushing stock returns down an average 5 percentage points monthly, twice the level of other geopolitical risk events.

The IMF is due to release the full report at its spring meetings with the World Bank the week of April 21. Trump's tariff announcements will likely dominate the meetings.

Last week saw the wildest swings on Wall Street since the COVID pandemic of 2020. The benchmark Standard & Poor's 500 index is down more than 10 percent since Trump took office on January 20, while gold has hit record highs.

One US survey of consumers showed inflation fears have hit their highest level since 1981, while financial institutions have been warning of the growing risk of recession.

The IMF also said economic uncertainty increases so-called market tail risks - the chance of extreme, unexpected losses in an investment portfolio - which in turn boost the risk of stock market crashes.

READ MORE: China seen as sheet anchor amid global trade storm

It said heightened geopolitical risks also drive up sovereign risk premiums - the prices for credit derivatives that protect against default - and could spill over to other economies through trade and financial linkages.