Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Fed says U.S. financial system resilient; flags low rates, 'stablecoin' as risks

Published 2019-11-15, 02:04 p/m
Updated 2019-11-15, 02:09 p/m
Fed says U.S. financial system resilient; flags low rates, 'stablecoin' as risks

Fed says U.S. financial system resilient; flags low rates, 'stablecoin' as risks

WASHINGTON (Reuters) - The U.S. financial system appears stable overall, though high levels of corporate debt, the impact of an extended period of low global interest rates, and emerging "stablecoin" proposals could pose risks, the Federal Reserve reported on Friday.

In its latest twice-yearly review of financial stability, the Fed said that conditions had changed little since its last report in May, and that "the core of the financial sector appears resilient."

Some asset values are high, the Fed noted, pointing in particular to commercial real estate values. But "risk appetite" was felt to be in line with "historical norms," household debt "at a modest level relative to income," leverage levels low among the largest banks, and the use of potentially volatile short-term funding posing only a modest risk to financial institutions.

But the report highlighted the Fed's ongoing concern with record high levels of corporate debt, which some Fed officials worry could go bad if business slows and worsen any economic downturn. In addition, the Fed said low global borrowing costs could over time erode bank, insurance company, and pension fund returns, prompting them to take more risks.

Over time, emerging financial technologies, such as the "stablecoin" crypto currency network proposed by Facebook (NASDAQ:FB), could cause trouble.

"The current combination of very low credit spreads and high levels of indebtedness among risky nonfinancial corporates, including through leveraged loans, merits heightened vigilance," Fed Governor Lael Brainard said in a prepared statement. "Over the medium term, the low-for-long environment and the associated incentives to reach for yield and take on additional debt could increase financial vulnerabilities.

"Looking farther ahead, the emergence of a stablecoin network with global reach could pose important risks to financial stability."

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.