This study aims to analyze the determinants of financial stress, the impact of financial stress on the real economy and the interactions between monetary policy and financial stress in the ASEAN-5 economies. Results from a panel model of the determinants of financial stress indicates the significance of 3 global and regional variables - US financial stress, world GDP, regional financial contagion – and one domestic variable, bank credit, as important sources of financial stress. Through a subsequent SVAR analysis, financial stress is found to have adverse effects on the real economy, with large initial effects followed by a gradual dissipation. The results also suggest that the central banks in Malaysia, the Philippines and Thailand tend to lower their policy interest rates when financial stress increases. This leads to improvements in economic activity, albeit often with different time dynamics compared to the impact of financial stress on economic activity. Compared to financial stress, monetary policy shocks tend to affect output more gradually over longer lags. Lower policy interest rates are found to have a limited effect in alleviating financial stress, but can stimulate economic activity through other channels.