Via Federal Reserve Financial Stability Report
- Broad range of asset prices could be vulnerable to large & sudden declines
- Household debt is moderate relative to income
- large banks' committed credit lines to non-bank financial entities increased in late 2020, reached a record $1.6 trillion by year-end
- data on margin, securities borrowing suggest hedge fund leverage associated with equities market activity is at high levels
- most measures of hedge fund leverage increased in the second half of 2020; now above historical averages
- broker-dealer leverage remained near historically low levels through the fourth quarter of 2020
- delinquency rates remained unchanged for most types of loans during the second half of 2020, rose for commercial real estate loans
- commercial and industrial, commercial real estate, residential mortgage loans in loss mitigation remain elevated
- leverage at banks and broker-dealers remains low; leverage at hedge funds, life insurers remains high
- adverse developments in emerging market economies spurred by further rise in long-term rates could spill over to united states
- stresses from lingering pandemic in Europe pose risks to u.s. financial system
- less-than-anticipated progress on pandemic could pose risks to u.s. financial system
- gamestop, archegos incidents highlight opacity of risky exposures, need for greater transparency at hedge funds and other leveraged entities
- concentrated trading of some 'meme' stocks in January led to substantial margin increases on equity trades and equity option positions that challenged some brokers in those markets
- behavior of 'meme' stocks in early 2021 also indicative of elevated risk appetite
- elevated equity issuance through spacs suggests a higher-than-typical appetite for risk among equity investor
- overall credit quality of outstanding bonds has improved since November
The Federal Reserve seems relaxed ... despite some of those points being indicative of potential instabilities brewing.