6 takeaways from the Fed’s financial stability assessment
WASHINGTON — A Federal Reserve report released this week shows how financial markets' desire for higher yields creates the potential for losses, although capital and liquidity safeguards are tempering any concerns about a catastrophic crash.
The central bank's semiannual Financial Stability Report identified a sharp increase in both leveraged lending and corporate debt, as well as the threat of an economic slowdown at home and abroad, as the leading sources of risk to the financial system.
In general, there were few glaring differences between the report released Monday and the Fed’s inaugural assessment of financial stability in November.
“Investor appetite for risk appears elevated by several measures, and the debt loads of businesses are historically high,” the report said. “However, the financial sector appears resilient, with low leverage and limited funding risk. Despite volatility in financial markets late last year, our assessment of each of the four vulnerability categories is little changed since the November 2018 FSR.”
However, there are some important takeaways from the report — including not only the financial system’s potential vulnerabilities, but it’s potential sources of strength in a future downturn.