The Fed is out with the details of semiannual Financial Stability Report. In it they say:

  • Persistent inflation, tighter monetary policy remain most cited potential risk to the financial system
  • 'Policy uncertainty,’ including escalating geopolitical tensions and upcoming US elections, cited by 60% of respondents as potential financial stability risk
  • Commercial real estate and banking sector stress less frequently cited as stability risk than in Fed's fall 2023 survey
  • Nearly two-thirds of respondents mentioned policy uncertainty as a risk, significantly higher than in the October report
  • Cyberattacks, US-China tensions, Middle East conflicts also listed as risks, while nonbanks and Ukraine-Russia war have dropped off risk list
  • Leverage at hedge funds reached highest level since data collection began
  • Concerns over uninsured deposits and other factors continued to generate funding pressures for a subset of banks
  • 1,804 of more than 9,000 eligible institutions tapped the Bank Term Funding Program; 95% of those had assets of less than $10 bln

The Federal Reserve's Financial Stability Report is a semi-annual publication that assesses and details the stability of the financial system in the United States. The key elements of this report include:

  1. Risk Analysis: It identifies and analyzes potential risks to financial stability, which could include issues like asset price volatility, borrowing by businesses and households, leverage within the financial sector, and funding risks.

  2. Current Assessment: The report provides an assessment of the current financial system conditions, noting any vulnerabilities that might pose risks to stability.

  3. Potential Shocks: It evaluates the system’s susceptibility to shocks from domestic and international sources, such as economic downturns, geopolitical tensions, and major policy changes.

  4. Regulatory and Policy Developments: The report also discusses the impact of regulatory and legislative changes on financial stability, including new rules or modifications to existing regulations.

  5. Economic Outlook: Although primarily focused on stability, the report often includes insights into the broader economic environment, including aspects like inflation rates, employment, and economic growth, which all influence financial stability.

  6. Stress Testing and Scenarios: The report might include results from stress tests conducted on banks to assess their resilience in adverse economic scenarios.

The goal of the Federal Reserve’s Financial Stability Report is to promote market transparency by providing a thorough analysis of the financial system's robustness, and to signal to lawmakers, regulators, and the public about potential risks that could undermine financial stability. This helps in forming policies and taking measures to mitigate identified risks.

CLICK HERE for the full report.