We identify financial stress regimes using a model that explicitly links financial variables with the macroeconomy. The financial stress regimes are identified using a large unbalanced panel of financial variables with an embedded method for variable selection and, empirically, are strongly correlated with NBER recessions. The empirical results on the selection of financial variables support the use of credit spreads to identify asymmetries in the responses of economic activity and prices to financial shocks. We use a novel factor-augmented vector autoregressive model with smooth regime changes (FASTVAR). The unobserved financial factor is jointly estimated with the parameters of a logistic function that describes the probabilities of the financial stress regime over time.