Featured Product

    FED Publishes Financial Stability Report in November 2019

    November 15, 2019

    FED published the financial stability report, presenting the assessment of the resilience of the U.S. financial system. The report analyzes vulnerabilities related to valuation pressures, borrowing by businesses and households, financial leverage, and funding risk. It also highlights several near-term risks that, if realized, could interact with such vulnerabilities. The assessment of financial vulnerabilities by FED informs the design of stress-test scenarios and decisions regarding the countercyclical capital buffer (CCyB). The assessment of vulnerabilities helps identify salient risks that can be included in the scenarios.

    The report states that investor appetite for risk generally appears to have returned to a level in the middle of its historical range but remains elevated for some important classes of assets. Debt loads of businesses are historically high. The core of the financial sector appears resilient, with leverage low and funding risk limited relative to the levels of recent decades. Overall, the level of vulnerabilities in the financial system has moved little since the publication of the financial stability report in May 2019. Stresses in Europe, such as those related to Brexit; stresses in emerging markets; and an unexpected and marked slowdown in U.S. economic growth are among the near-term risks that have the potential to interact with the vulnerabilities and pose risks to the financial system. The key findings of the report include the following:

    • Asset valuations. Asset prices remain high in several markets relative to income streams. However, risk appetite measures that account for the low level of long-term yields on U.S. Treasury securities are more aligned with the historical norms for most markets. With the exception of riskier corporate debt, commercial real estate (CRE), and farmland markets, these measures point to a reduction in risk appetite from the elevated levels of 2017 and 2018.
    • Borrowing by businesses and households. Borrowing by businesses is historically high, with the most rapid increases in debt concentrated among the riskiest firms amid weak credit standards. In contrast, household borrowing has risen in line with incomes and is concentrated among borrowers with low credit risk. Credit risk of outstanding mortgages remains generally low.
    • Leverage in the financial sector. The largest U.S. banks remain strongly capitalized and the leverage of broker-dealers is at historically low levels. However, several large banks have announced plans to reduce their voluntary capital buffers. Leverage among life insurance companies is moderate, while hedge fund leverage remains elevated relative to the past five years.
    • Funding risk. Estimates of the total amount of financial system liabilities that are most vulnerable to runs, including those issued by non-banks, remain modest. Short-term wholesale funding continues to be low compared with other liabilities and the ratio of high-quality liquid assets to total assets remains high at large banks.

     

    Related Link: Report (PDF)

     

    Keywords: Americas, US, Banking, Insurance, Securities, Financial Stability Report, CCyB, Stress Testing, Brexit, Credit Risk, FED

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    News

    BCBS Issues Climate Risk Principles while HKMA Expresses Its Support

    The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8280