《美联储理事会:2021年金融稳定报告(英文版)(80页).pdf》由会员分享,可在线阅读,更多相关《美联储理事会:2021年金融稳定报告(英文版)(80页).pdf(80页珍藏版)》请在三个皮匠报告上搜索。
1、Board of Govern ors o f t h e Fe d e r a l Re s e rv e Sy s t e mFinancial Stability ReportMay 2021Board o f Gov e r no r s o f t h e Fe d e ra l Re s e rv e Sys t e mFinancial Stability ReportMay2021This and other Federal Reserve Board reports and publications are available online at www.federalres
2、erve.gov/publications/default.htm.To order copies of Federal Reserve Board publications offered in print, see the Boards Publication Order Form (www.federalreserve.gov/pubs/orderform.pdf)or contact: Publications Fulfillment Mail Stop N-127 Board of Governors of the Federal Reserve System Washington,
3、 DC 20551(ph) 202-452-3245(fax) 202-728-5886(email) Publications-BOGfrb.gov iiiContentsPurpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4、 . . . . . . . . . . 3Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71. Asset Valuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92. Borrowing by Businesses and Households. . .
5、. . . . . . . . . . . . . . . . . . . . . . 233. Leverage in the Financial Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374. Funding Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Near-Term Risks to the Financial System
6、. . . . . . . . . . . . . . . . . . . . . . . . . . . 59Figure Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Note: This report generally reflects information that was available as of April19, 2021.Vulnerabilities from Asset Valuations, Ri
7、sk Appetite, and Low InterestRates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15The Paycheck Protection Program Liquidity Facility. . . . . . . . . . . . . . . . . . . 32LIBOR Transition Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8、 . . . . . . . 51Vulnerabilities in Global U.S. Dollar Funding Markets. . . . . . . . . . . . . . . . . 55Salient Shocks to Financial Stability Cited in Market Outreach . . . . . . . . . . 62Boxes 1PurposeThis report presents the Federal Reserve Boards current assessment of the resilience of the U.S
9、. financial system. By publishing this report, the Board intends to promote public under-standing and increase transparency and accountability for the Federal Reserves views on this topic.Promoting financial stability is a key element in meeting the Federal Reserves dual mandate for monetary policy
10、regarding full employment and stable prices. In an unstable financial system, adverse events are more likely to result in severe financial stress and disrupt the flow of credit, leading to high unemployment and great financial hardship. Monitoring and assessing financial stability also support the F
11、ederal Reserves regulatory and supervisory activities, which promote the safety and soundness of our nations banks and other impor-tant financial institutions. Information gathered while monitoring the stability of the finan-cial system helps the Federal Reserve develop its view of the salient risks
12、 to be included in the scenarios of the stress tests and its setting of the countercyclical capital buffer (CCyB).1The Boards Financial Stability Report is similar to those published by other central banks and complements the annual report of the Financial Stability Oversight Council (FSOC), which i
13、s chaired by the Secretary of the Treasury and includes the Federal Reserve Board Chair and other financial regulators.1 More information on the Federal Reserves supervisory and regulatory activities is available on the Boards website; see Board of Governors of the Federal Reserve System (2021), Sup
14、ervision and Regulation Report (Washington: Board of Governors, April), available at https:/www.federalreserve.gov/publications/supervision-and-regulation-report.htm as well as the webpages for Supervision and Regulation (https:/www.federalreserve.gov/supervisionreg.htm) and Payment Systems (https:/
15、www.federalreserve.gov/paymentsystems.htm). Moreover, additional details about the conduct of monetary policy are also on the Boards website; see the Monetary Policy Report (https:/www.federalreserve.gov/monetarypolicy/mpr_default.htm) and the webpage for Monetary Policy (https:/www.federalreserve.g
16、ov/monetarypolicy.htm). 3FrameworkA stable financial system, when hit by adverse events, or “shocks,” continues to meet the demands of households and businesses for financial services, such as credit provision and payment services. In contrast, in an unstable system, these same shocks are likely to
17、have much larger effects, disrupting the flow of credit and leading to declines in employment and economic activity.Consistent with this view of financial stability, the Federal Reserve Boards monitoring framework distinguishes between shocks to and vulnerabilities of the financial system. Shocks, s
18、uch as sudden changes to financial or economic conditions, are typically surprises and are inherently difficult to predict. Vulnerabilities tend to build up over time and are the aspects of the financial system that are most expected to cause widespread problems in times of stress. As a result, the
19、framework focuses primarily on monitoring vulnerabilities and emphasizes four broad categories based on research.21. Elevated valuation pressures are signaled by asset prices that are high relative to eco-nomic fundamentals or historical norms and are often driven by an increased willingness of inve
20、stors to take on risk. As such, elevated valuation pressures imply a greater possibil-ity of outsized drops in asset prices.2. Excessive borrowing by businesses and households leaves them vulnerable to distress if their incomes decline or the assets they own fall in value. In the event of such shock
21、s, businesses and households with high debt burdens may need to cut back spending sharply, affecting the overall level of economic activity. Moreover, when businesses and households cannot make payments on their loans, financial institutions and investors incur losses.3. Excessive leverage within th
22、e financial sector increases the risk that financial institu-tions will not have the ability to absorb even modest losses when hit by adverse shocks. In those situations, institutions will be forced to cut back lending, sell their assets, or, in extreme cases, shut down. Such responses can substanti
23、ally impair credit access for house-holds and businesses.4. Funding risks expose the financial system to the possibility that investors will “run” by withdrawing their funds from a particular institution or sector. Many financial institu-tions raise funds from the public with a commitment to return
24、their investors money on short notice, but those institutions then invest much of the funds in illiquid assets that 2 For a review of the research literature in this area and further discussion, see Tobias Adrian, Daniel Covitz, and Nellie Liang (2015), “Financial Stability Monitoring,” Annual Revie
25、w of Financial Economics, vol. 7 (December), pp. 35795.4 Frameworkare hard to sell quickly or in assets that have a long maturity. This liquidity and maturity transformation can create an incentive for investors to withdraw funds quickly in adverse situations. Facing a run, financial institutions ma
26、y need to sell assets quickly at “fire sale” prices, thereby incurring substantial losses and potentially even becoming insolvent. Histo rians and economists often refer to widespread investor runs as “financial panics.”These vulnerabilities often interact with each other. For example, elevated valu
27、ation pres-sures tend to be associated with excessive borrowing by businesses and households because both borrowers and lenders are more willing to accept higher degrees of risk and leverage when asset prices are appreciating rapidly. The associated debt and leverage, in turn, make the risk of outsi
28、zed declines in asset prices more likely and more damaging. Similarly, the risk of a run on a financial institution and the consequent fire sales of assets are greatly amplified when significant leverage is involved.It is important to note that liquidity and maturity transformation and lending to ho
29、useholds, businesses, and financial firms are key aspects of how the financial system supports the economy. For example, banks provide safe, liquid assets to depositors and long-term loans to households and businesses; businesses rely on loans or bonds to fund investment projects; and households ben
30、efit from a well-functioning mortgage market when buying a home.The Federal Reserves monitoring framework also tracks domestic and international devel-opments to identify near-term risksthat is, plausible adverse developments or shocks that could stress the U.S. financial system. The analysis of the
31、se risks focuses on assessing how such potential shocks may play out through the U.S. financial system, given our current assessment of the four areas of vulnerabilities.While this framework provides a systematic way to assess financial stability, some potential risks do not fit neatly into it becau
32、se they are novel or difficult to quantify. In addition, some vulnerabilities are difficult to measure with currently available data, and the set of vulnera-bilities may evolve over time. Given these limitations, we continually rely on ongoing research by the Federal Reserve staff, academics, and ot
33、her experts to improve our measurement of existing vulnerabilities and to keep pace with changes in the financial system that could cre-ate new forms of vulnerabilities or add to existing ones.Federal Reserve actions to promote the resilience of the financial systemThe assessment of financial vulner
34、abilities informs Federal Reserve actions to promote the resilience of the financial system. The Federal Reserve works with other domestic agencies directly and through the FSOC to monitor risks to financial stability and to undertake super-visory and regulatory efforts to mitigate the risks and con
35、sequences of financial instability.Actions taken by the Federal Reserve to promote the resilience of the financial system include its supervision and regulation of financial institutionsin particular, large bank FINaNCIaL STaBILITY rePorT: maY 2021 5holding companies (BHCs), the U.S. operations of c
36、ertain foreign banking organizations (FBOs), and financial market utilities. Specifically, in the post-crisis period, for the largest, most systemically important BHCs, these actions have included requirements for more and higher-quality capital, an innovative stress-testing regime, new liquidity re
37、gulation, and improvements in the resolvability of such BHCs.In addition, the Federal Reserves assessment of financial vulnerabilities informs the design of stress-test scenarios and decisions regarding the CCyB. The stress scenarios incorporate some systematic elements to make the tests more string
38、ent when financial imbalances are rising, and the assessment of vulnerabilities also helps identify salient risks that can be included in the scenarios. The CCyB is designed to increase the resilience of large banking organizations when there is an elevated risk of above-normal losses and to promote
39、 a more sustainable supply of credit over the economic cycle. 7OverviewThis report reviews conditions affecting the stability of the financial system by analyzing vul-nerabilities related to valuation pressures, borrowing by businesses and households, financial leverage, and funding risk. It also hi
40、ghlights several near-term risks that, if realized, could interact with such vulnerabilities.Since the November2020 Financial Stability Report was issued, prices of risky assets gen-erally rose further, with the outlook buoyed by positive vaccine-related news, additional fiscal stimulus, and better-
41、than-expected economic data. Vulnerabilities from both business and household debt have declined, reflecting a slower pace of business borrowing and an improvement in earnings as well as government programs that have supported business and household incomes. Even so, many businesses and households r
42、emain under considerable strain, with job losses heavily concentrated among the most financially vulnerable, including many lower-wage workers and racial and ethnic minorities. Banks have remained well cap-italized but may face heightened credit risk in the sectors most affected by the COVID-19 pand
43、emic. Although markets for short-term funding are now functioning normally, struc-tural vulnerabilities at some nonbank financial institutions (NBFIs) could amplify shocks to the financial system in times of stress.Our current view of vulnerabilities is as follows:1. Asset valuations. Prices of risk
44、y assets have generally increased since November with improving fundamentals, and, in some markets, prices are high compared with expected cash flows. Long-term Treasury yields have risen over the past few months but remain low by historical standards. High asset prices in part reflect the continued
45、 low level of Trea-sury yields. However, valuations for some assets are elevated relative to historical norms even when using measures that account for Treasury yields. In this setting, asset prices may be vulnerable to significant declines should risk appetite fall.2. Borrowing by businesses and ho
46、useholds. Debt owed by businesses was effectively flat in the second half of 2020, remaining at a high level relative to gross domestic product (GDP). Improving earnings, low interest rates, and ongoing government support have increased the ability of businesses to service these obligations. Debt ow
47、ed by households remained at a moderate level relative to income. Delinquencies on mortgages and other consumer debt fell early in the pandemic and remain below their pre-pandemic levels, as households have received significant government supportincluding from forbearance and fiscal programsand as i
48、nterest rates have remained low. Even so, some businesses and households remain under considerable strain.8 overvIew3. Leverage in the financial sector. Banks remain well capitalized, and leverage at broker-dealers is low. Measures of hedge fund leverage are somewhat above their historical averages,
49、 but the data available may not capture important risks from hedge funds or other leveraged funds. Amid elevated investor risk appetite, issuance of collateralized loan obligations (CLOs) and asset-backed securities (ABS) has been robust.4. Funding risk. Funding risks at domestic banks remain low, b
50、ecause these banks rely only modestly on short-term wholesale funding and maintain sizable holdings of high-quality liquid assets. However, the market turmoil at the onset of the pandemic highlighted struc-tural vulnerabilities that persist at some types of money market funds (MMFs) as well as bond
51、and bank loan mutual funds.This report also details how near-term risks have changed since the November2020 report. Despite substantial progress with vaccinations, perceived risks associated with the course of the pandemic and its effects on the U.S. and foreign economies remain relatively high. A w
52、orsening of the global pandemic could stress the financial system in emerging markets and some European countries. Further, if global interest rates were to rise abruptly, some emerging market economies (EMEs) could experience additional fiscal strains. These risks, if realized, could interact with
53、the vulnerabilities identified in this report and pose additional risks to the U.S. financial system. 9Prices of risky assets have risen further on the improved economic outlook, and valuations are generally highBroad equity market indexes have reached record highs in recent months. Yields on corpo-
54、rate bonds and leveraged loans remain at low levels relative to their historical ranges. Mean-while, yields on long-term Treasury securities have risen over the past few months but remain low by historical standards. Reflecting, in part, increased prices, some measures of risk compensation, which ac
55、count for the still-low level of interest rates, have decreased to levels that are low relative to their historical norms.On balance, indicators of commercial real estate (CRE) valuations remain high; however, low transaction volumesespecially for distressed propertiesmay mask declines in commer-cia
56、l property values. Farmland prices remain elevated relative to rents and incomes. Sup-ported by relatively low mortgage rates, house prices have continued to increase amid strong homesales.Looking ahead, asset prices may be vulnerable to significant declines should investor risk appetite fall, progr
57、ess on containing the virus disappoint, or the recovery stall. Some seg-ments of the economysuch as energy, travel, and hospitalityare particularly sensitive to pandemic-related developments.Table 1 shows the sizes of the asset markets discussed in this section. The largest asset markets are those f
58、or corporate public equities, residential real estate, Treasury securities, andCRE.Treasury yields and term premiums have risen but remain lowSince the previous report, yields on longer-dated Treasury securities have moved up to their pre-COVID levels (figure1-1). Model estimates of Treasury term pr
59、emiums have also risen but are still negative, and implied volatility on long-term interest rates has edged up (figures1-2 and 1-3).3 The increases in yields and term premiums are consistent with market perceptions of an improved economic outlook, higher inflation expectations, and diminished downsi
60、de risks from the pandemic. Still, Treasury yields remain low relative to their histor-ical range, and an increase in term premiums, if not accompanied by a strengthening of the economic outlook, could put downward pressure on valuations in a variety of markets.3 Treasury term premiums capture the d
61、ifference between the yield that investors require for holding longer-term Treasury securities and the expected yield from rolling over shorter-dated ones.1. Asset Valuations10 aSSeT vaLuaTIoNS1-1. Yields on Nominal Treasury SecuritiesSource: Federal reserve Board, Statistical release H.15, “Selecte
62、d Interest rates.”072001320172021Percent, annual rate2-year10-yearmonthlyapr.Table 1. Size of Selected Asset MarketsItemOutstanding (billions of dollars)Growth, 2019:Q42020:Q4 (percent)Average annual growth, 19972020:Q4 (percent)equities46,92222.09.2residential real estate41,27
63、27.45.7Treasury securities20,94626.08.3Commercial real estate20,9143.97.0Investment-grade corporate bonds6,5519.18.5Farmland2,569.95.3High-yield and unrated corporate bonds1,65225.07.1Leveraged loans*1,193014.4Price growth (real)Commercial real estate*7.52.8residential real estate*7.72.3 Note: The d
64、ata extend through 2020:Q4. Growth rates are measured from Q4 of the year immediately preceding the period through Q4 of the final year of the period. equities, real estate, and farmland are at market value; bonds and loans are at book value.* The amount outstanding shows institutional leveraged loa
65、ns and generally excludes loan commitments held by banks. For example, lines of credit are generally excluded from this measure. average annual growth of leveraged loans is from 2000 to 2020:Q4, as this market was fairly small before then.* one-year growth of commercial real estate prices is from De
66、cember2019 to December2020, and average annual growth is from 1998:Q4 to 2020:Q4. Both growth rates are calculated from value-weighted nominal prices deflated using the consumer price index.* one-year growth of residential real estate prices is from December2019 to December2020, and average annual g
67、rowth is from 1997:Q4 to 2020:Q4. Nominal prices are deflated using the consumer price index.Source: For leveraged loans, S&P Global, Leveraged Commentary & Data; for corporate bonds, mergent, Inc., Corporate Fixed Income Securities Database; for farmland, Department of agriculture; for residential
68、real estate price growth, CoreLogic; for commercial real estate price growth, CoStar Group, Inc., CoStar Commercial repeat Sale Indices; for all other items, Federal reserve Board, Statistical release Z.1, “Financial accounts of the united States.”FINaNCIaL STaBILITY rePorT: maY 2021 11Measures of T
69、reasury market functioning have generally been stable since the stresses of spring 2020 receded. However, on February25, market liquidity deteriorated following a disappointing seven-year Treasury note auction and an accompanying sharp increase in Treasury yields. Some liquidity metrics, such as mar
70、ket depth, deteriorated significantly (figure1-4).4 Market depth overall rebounded in subsequent weeks; however, for short- and medium-dated securities, the recovery was uneven and slower on net. This event highlighted the importance of continued focus on Treasury market resilience. The FSOC recentl
71、y called for an interagency effort to understand key causes of last years Treasury market disruptions and to enhance market resilience.Corporate bond spreads declined to low levels, while issuance remained solidSince the November report, amid the increase in Treasury yields, yields on higher-rated c
72、or-porate bonds increased modestly, while yields on lower-rated corporate bonds declined4 Market depth indicates the quantity of an asset available to buy or sell at the best posted bid and ask prices.050030020032006200920021Basis pointsmonthlyapr.1-3. Implied volatility of 10-
73、Year Swap rateSource: Barclays.1.51.00.50.00.51.01.52.02.552009201320172021Percentage pointsmonthlyapr.1-2. Term Premium on 10-Year Nominal Treasury SecuritiesSource: Department of the Treasury; wolters kluwer, Blue Chip Financial Forecasts; Federal reserve Bank of New York; Federal reser
74、ve Board staff estimates.1-4. Treasury market DepthSource: Interdealer broker community.0550500300350Jan.apr.Julyoct.Jan.apr.Julyoct.Jan.apr.millions of dollarsmillions of dollarsapr.195-day moving average2021202020195-year (right scale)10-year (right scale)30-year (left scale)
75、12 aSSeT vaLuaTIoNSsignificantly (figure1-5). These movements left the spreads of lower-rated corporate bond yields over comparable-maturity Treasury yields very narrow relative to their historical distributions (figure1-6).5 Corporate bond spreads in sectors heavily affected by the pandemicsuch as
76、energy, airline, and hospitalityalso declined but remain wider than average spreads across all industries. The excess bond premium, which is a measure that captures the gap between corporate bond spreads and expected credit losses, is at the bottom quintile of its historical distribution, suggesting
77、 elevated appetite for risk among investors (figure1-7).6Corporate bond markets appear to have functioned smoothly since the November Financial Stability Report, and bid-ask spreads remained within historical norms. The Federal Reserves corporate credit emer-gency lending facilities, as well as seve
78、ral other facilities, expired at the end of last year and are no longer authorized to purchase eligible assets. This event left no imprint on markets.Corporate bond issuance by both investment- and speculative-grade firms has remained solid, as companies boosted their cash buffers and refinanced the
79、ir debt at lower interest rates and longer maturities. The share of investment-grade issuance with the lowest ratings has increased. However, within speculative-grade bonds, the share of new 5 Spreads between yields on corporate bonds and comparable-maturity Treasury securities reflect the extra com
80、pensation investors require to hold debt that is subject to corporate default or liquidity risks.6 For a description of the excess bond premium, see Simon Gilchrist and Egon Zakrajek (2012), “Credit Spreads and Busi-ness Cycle Fluctuations,” American Economic Review, vol. 102 (June), pp. 1692720.321
81、001320172021monthlyPercentage pointsmar.1-7. excess Bond PremiumSource: Federal reserve Board staff calculations based on Lehman Brothers Fixed Income Database (warga); Intercontinental exchange, Inc., ICe Data Services; Center for research in Security Prices, CrSP/Compustat me
82、rged Database, wharton research Data Services; S&P Global market Intelligence, Compustat.022452009201320172021monthlyPercentage pointsPercentage pointsapr.Triple-B(left scale)High-yield(right scale)1-6. Corporate Bond Spreads to Similar-maturity Treasury S
83、ecurities Source: ICe Data Indices, LLC, used with permission.024680222452009201320172021monthlyPercentTriple-BHigh-yieldapr.1-5. Corporate Bond YieldsSource: ICe Data Indices, LLC, used with permission.FINaNCIaL STaBILITY rePorT: maY 2021 13bonds with the lowest ratings remain
84、ed subdued through the first quarter of 2021. While the composition of new issues of investment-grade bonds has become riskier, overall credit quality of outstanding bonds has improved since November as actual and expected defaults have declined.Spreads on leveraged loans, in both the primary and se
85、condary markets, have narrowed fur-ther since the fall (figure1-8). These spreads are now in the bottom quintile of their post-2008 distributions.Equity prices increased amid continued high volatility, and valuations continue to be supported in part by low interest ratesEquity prices have increased,
86、 on net, since November2020. Forecasts of corporate earnings have risen roughly in line with equity prices, so the ratio of prices to forecasts of earnings remains near the top of its historical distribution (figure1-9). Meanwhile, the difference between the forward earnings-to-price ratio and the e
87、xpected real yield on 10-year Treasury securitiesa rough measure of the compensation that investors require for holding risky 69730162021monthlyratiomedianapr.1-9. Forward Price-to-earnings ratio of S&P 500 FirmsSource: Federal reserve Board staff calculations using
88、refinitiv (formerly Thomson reuters), Institutional Brokers estimate System estimates.1-8. Secondary-market Spreads of Leveraged LoansSource: S&P Global, Leveraged Commentary & Data.059972001320172021weeklyPercentage pointsapr.9BBB14 aSSeT vaLuaTIoNSstocks known as the equity p
89、remiumhas declined since November (figure1-10). A lower equity premium generally indicates investors have a higher appetite for the risk of invest-ing in equities. However, this measure of the equity premium remains above its historical median, suggesting that equity investor risk appetite, though h
90、igher since November by this measure, is still within historical norms. That said, this measure is close to its lowest level over the past 15years. Option-implied volatility, a proxy for perceived uncertainty, remains above pre-pandemic levels (figure1-11).In contrast to the mixed signals from price
91、-based measures, a number of nonprice measures suggest that investor appetite for equity risk is elevated relative to history. The pace of initial public offerings (IPOs) has increased to levels not seen since the 1990s. In addition, a ris-ing share of IPOs is supported by special purpose acquisitio
92、n companies (SPACs), which are nonoperating corporations created specifically to issue public equity and subsequently acquire an existing operating company. For a broader discussion of risk appetite, see the box “Vulnerabilities from Asset Valuations, Risk Appetite, and Low Interest Rates.”202468101
93、9906201120162021monthlyPercentage pointsmedianapr.1-10. Spread of Forward earnings-to-Price ratio of S&P 500 Firms to expected 10-Year real Treasury YieldSource: Federal reserve Board staff calculations using refinitiv (formerly Thomson reuters), Institutional Brokers estimate System esti
94、mates; Department of the Treasury; Federal reserve Bank of Philadelphia, Survey of Professional Forecasters.007052009201320172021monthlyPercentoption-implied volatilityrealized volatilityapr.1-11. S&P 500 return volatilitySource: Bloomberg Finance L.P.FINaNCIaL STaBILITY rePorT
95、: maY 2021 15Vulnerabilities from Asset Valuations, Risk Appetite, andLow Interest RatesAssessing vulnerabilities from asset valuations is a part of the Federal Reserves fi nancial stability framework. High asset valuations, relative to the general level of interest rates and the income fl ows gener
96、ated by different types of assets, suggest investors require less compensation for the risks they are taking and, thus, have elevated appetite for or willingness to invest in risky assets. At times when risk appetite is elevated, investors may take on excessive leverage or engage in other forms of r
97、isk-taking, which are vulnerabilities that are addressed in other parts of the Federal Reserves fi nan-cial stability framework. In addition, should risk appetite decline from elevated levels, a broad range of asset prices could be vulnerable to large and sudden declines, which can lead to broader s
98、tress to the fi nancialsystem.In this discussion, we fi rst provide a short primer on factors affecting asset prices. Next, we explore methods that are used to assess investor risk appetite, focusing on approaches that account for economic fundamentals. And, fi nally, motivated by the notable declin
99、e in interest rates over recent decades, we ask how persistently low interest rates might affect valuations and risk appetite.Factors affecting asset pricesPeople and businesses invest now to receive income in the future. There are various theories explain-ing asset prices. According to a long-stand
100、ing theory, an assets price should equal the expected discounted value today of future payoffs from holding assetsfor example, interest payments from Treasury securities and corporate bonds as well as dividends from stocks.1 Investors also want to be compensated for the relative risk of their invest
101、ments, so the expected rate of return will tend to be higher for riskier assets such as equities and corporate bonds than for Treasury securities. The differ-ence in the expected returns between risky assets and Treasury securities is the risk premium investors expect to receive as compensation for
102、the risk they take.For assets such as publicly traded equities and corporate bonds, it can be diffi cult to tell the relative contribution of risk premiums and expected future income in causing changes in asset valuations at any point in time. An increase in asset prices might refl ect higher expect
103、ed future payoffs; a decline in the overall level of interest rates, which raises the current value of those future payoffs; a fall in risk premiums; or a combination of these factors.Asset prices and risk appetiteThe Federal Reserve closely monitors measures of risk premiums, which help indicate wh
104、ether investor risk appetite is rising or falling. When risk appetite is higher, risk premiums are lower, prices of risky assets are higher, and the odds of a large and potentially destabilizing fall in asset prices increases. High risk appetite can also prompt businesses and households to take on m
105、ore leverage and induce banks and other lenders to increase their risk-taking.1 Discounting refers to the formula for determining the current value of a payment or stream of payments in the future. The discount rate for a risky asset equals the interest rate on a safe asset plus a risk premium, whic
106、h compensates investors for the risk of losses from holding the risky asset. an alternative theory for asset prices is that an asset price today reflects market participants estimate of what a potential buyer might be willing to pay for the asset tomorrow.(continued on next page)16 aSSeT vaLuaTIoNST
107、he risk premium for an asset varies over time and, unlike the price of an asset, cannot be directly observed. Thus, the Federal Reserve takes into account a large set of indicators that provide signals about risk premiums. For example, one measure of the risk premium investors require for holding st
108、ocks is the difference between the “earnings yield,” which is the ratio of earnings to stock prices, and the long-term real interest rate. This equity risk premium captures the earnings investors expect to receive by holding equities compared with what they would receive by holding a less risky inve
109、stment in long-term government bonds.2 The left panel of fi gure A shows the distribution of monthly readings on this measure over the past three decades, ordered from low to high. The arrow in the fi gure shows the most recently available reading. According to this measure, the equity risk premium
110、is around its historical center, suggesting that risk appetite is fairly typical.The right panel shows the distribution of a related measure for the corporate bond market: the excess bond premium.3 This measure captures a component of corporate bond yields that is not explained by risk-free rates or
111、 default risk. By construction, this measure has a historical average of zero. When it is below zero, risk appetite is above that average. As in the left panel, the arrow shows the most recent value, which is not just negative but among the lowest recorded in recent decades, indicating high riskappe
112、tite.2 This indicator is a rough measure of the premium that investors require for holding risky corporate equities. The first step in its calcula-tion is to take the ratio of firm earnings to stock prices as a proxy for expected equity returns. This ratio is calculated as the expected (or “forward”
113、) earnings of S&P 500 firms based on analyst estimates, divided by the price of the index. In the second step, the expected equity risk premium is calculated as the earnings yield less the expected 10-year real Treasury yield as a proxy for expected excess equity returns over a risk-free rate. altho
114、ugh this indicator provides useful information on the compensation for risk demanded by equity investors, alternative risk premium measures can be constructed using different models and assumptions. Considering a range of these measures can provide valuable additional insights into risk appetite and
115、 equity valuation pressures.3 See Simon Gilchrist and egon Zakrajek (2012), “Credit Spreads and Business Cycle Fluctuations,” American Economic Review, vol.102 (June), pp. 1692720. See also note 6 in the main text. This measure captures a component of corporate bond yields that is not explained by r
116、isk-free rates or default risk.(continued)Vulnerabilities from Asset Valuations (continued)Mar.20200CountPercentage pointsexpected equity risk PremiumMar.2026080100CountPercentage pointsexcess Bond PremiumSource: (Left-hand panel) Federal reserve Board staff calculat
117、ions using refinitiv (formerly Thomson reuters), Institutional Brokers estimate System estimates; Department of the Treasury; Federal reserve Bank of Philadelphia, Survey of Professional Forecasters.(right-hand panel) Federal reserve Board staff calculations based on Lehman Brothers Fixed Income Dat
118、abase (warga); Intercontinental exchange, Inc., ICe Data Services; Center for research in Security Prices, CrSP/Compustat merged Database, wharton research Data Services; Bank of america merrill Lynch Bond Indices; moodys; S&P Global market Intelligence, Compustat.Figure a. measures of risk appetite
119、FINaNCIaL STaBILITY rePorT: maY 2021 17The two panels of fi gure A thus give very different signals about risk appetite based on asset prices. They illustrate why the Federal Reserve also reviews indicators not directly related to an assets price but that have been associated with periods of elevate
120、d risk appetite in the past, such as measures related to trading patterns, underwriting standards, issuance, or investor leverage. For example, indicators pointing to elevated risk appetite in equity markets in early 2021 include the episodes of high trading volumes and price volatility for so-calle
121、d meme stocksstocks that increased in trading volume after going viral on social media.4 Elevated equity issuance through SPACs also suggests a higher-than-typical appetite for risk among equity investors (fi gure B).5Asset prices and persistently low risk-free interest ratesIn recent decades, risk-
122、free interest rates have declined notably, partly because of a decline in the neutral rate of interest, or the interest rate consistent with the economy being at full employment with 2percent infl ation. Even before the pandemic, a number of estimates found that the neutral rate of interest had decl
123、ined in recent decades. The decline in the neutral rate of interest likely refl ects persistent structural factors such as demographic changes and low productivity growth. While actual interest rates fl uctuate with the economic cycle, their trends tend to be driven by the neutral rate of interest.
124、In other words, when, as now, the neutral rate of interest is low, market interest rates also tend to be low. 4 one such episode occurred in January2021, when social media activity contributed to extreme fluctuations in stock prices for some companies, resulting in substantial losses for some invest
125、ors.5 SPaC issuance volume remained strong, but, going forward, the pace is reportedly expected to moderate, and the post-IPo perfor-mance of recently issued SPaCs has weakened. SPaC issuance took off in mid-2020 around the exceptional performance of some high-profile names (for example, Draftkings)
126、, with some commentators arguing that SPaCs offer a more efficient way to go public than the traditional IPo. However, some academics find that SPaCs have substantially higher costs and suggest that the advantages of SPaCs may be due to the lower disclosure requirements imposed by law when a company
127、 is acquired by a public SPaC, as opposed to undertaking a traditional IPo. See minmo Gahng, Jay r. ritter, and Donghang Zhang (2021), “SPaCs,” unpublished paper, January (revised march 2021); and michael klausner, michael ohlrogge, and emily ruan (forthcoming), “a Sober Look at SPaCs,” Yale Journal
128、 on Regulation. recent statements issued by the Securities and exchange Commission highlighted accounting challenges that may be common in SPaCs, potential liability risks of SPaCs under securities laws, and additional scrutiny that investors might want to use before investing in SPaCs.(continued on
129、 next page)Figure B. annual Domestic IPos Scaled by the market Capitalization of the S&P 5000.00.10.20.30.40.50.60.70.8PercentAnnual rate2020 H12020H2Q01320172021Special purpose acquisition companiesOperating companiesSource: SDC Platinum.18 aSSeT vaLuaTIoNSThe connections betw
130、een persistently low interest rates and risk premiums are not well understood. Persistently low interest rates might contribute to the buildup of fi nancial vulnerabilities through a vari-ety of channels. Because low interest rates tend to be driven by changes in the structure of the econ-omy that r
131、educe expected returns in many asset classes, low interest rates could lead some fi nancial intermediaries to invest in higher-risk assets to meet fi xed return targets.6 By reducing uncertainty about monetary policy, low interest rates could also mute fi nancial market volatility, which could con-t
132、ribute to a buildup in leverage if investors become complacent.7 Beyond asset valuations, low rates could encourage household borrowing, including through mortgages. Higher household borrowing can support spending and economic activity, but excessive borrowing can increase fi nancial vulnerabilities
133、.At the same time, persistently low interest rates can also reduce fi nancial vulnerabilitiesfor example, by supporting lower debt service payments. There is also some evidence that unexpected monetary policy easing leads to lower risk premiums, a key channel through which accommodative monetary pol
134、icy can support the economy.8 However, even large changes in interest rates due to unexpected changes in monetary policy have been found to have only modest effects on equity, corporate bond, and house prices when compared to the overall variation in these asset prices.9Given these challenges in ass
135、essing vulnerabilities associated with risk appetite and asset valuations, the Federal Reserves fi nancial stability monitoring tracks a wide range of measures related to risk-taking across fi nancial markets and institutions as well as the resilience of the system to potential drops in asset prices
136、.6 For example, one study provides evidence that “lower for longer” announcements led to higher risk-taking by mmFs; see marco Di maggio and marcin kacperczyk (2017), “The unintended Consequences of the Zero Lower Bound Policy,” Journal of Finan-cial Economics, vol. 123 (January), pp. 5980. regardin
137、g the connections between low interest rates and risk-taking by intermediaries, see also Claudio Borio and Haibin Zhu (2012), “Capital regulation, risk-Taking and monetary Policy: a missing Link in the Transmis-sion mechanism?” Journal of Financial Stability, vol. 8 (December), pp. 23651; Nuno Coimb
138、ra and Hlne rey (2019), “Financial Cycles with Heterogeneous Intermediaries,” NBer working Paper Series 23245 (Cambridge, mass.: National Bureau of economic research, January), https:/www.nber.org/papers/w23245; and Lina Lu, matthew Pritsker, andrei Zlate, kenechukwu anadu, and James Bohn (2019), “r
139、each for Yield by u.S. Public Pension Funds,” Finance and economics Discussion Series 2019-048 (washington: Board of Governors of the Federal reserve System, June), https:/dx.doi.org/10.17016/FeDS.2019.048.7 relatedly, low volatility could lead to higher leverage for intermediaries that face value-a
140、t-risk constraints. See Tobias adrian and Hyun Song Shin (2014), “Procyclical Leverage and value-at-risk,” Review of Financial Studies, vol. 27 (February), pp. 373403.8 See mark Gertler and Peter karadi (2015), “monetary Policy Surprises, Credit Costs, and economic activity,” American Economic Journ
141、al: Macroeconomics, vol. 7 (January), pp. 4476; Simon Gilchrist, David Lpez-Salido, and egon Zakrajek (2015), “monetary Policy and real Borrowing Costs at the Zero Lower Bound,” American Economic Journal: Macroeconomics, vol. 7 (January), pp. 77109; and Samuel G. Hanson and Jeremy C. Stein, “monetar
142、y Policy and Long-Term real rates,” Journal of Financial Econom-ics, vol. 115 (march), pp. 42948.9 For example, estimates from a range of models indicate that for every 100 basis point decline in the general level of interest rates, house prices increase over the course of several years by roughly 2
143、 to 4percentage points. By comparison, between 2000 and 2006, house prices increased between 40 and 70percent, depending on the house price measure used. For further discussion, see Jonathan Goldberg, elizabeth klee, edward Simpson Prescott, and Paul wood (2020), “monetary Policy Strategies and Tool
144、s: Finan-cial Stability Considerations,” Finance and economics Discussion Series 2020-074 (washington: Board of Governors of the Federal reserve System, august), https:/dx.doi.org/10.17016/FeDS.2020.074.Vulnerabilities from Asset Valuations (continued)FINaNCIaL STaBILITY rePorT: maY 2021 19Commercia
145、l real estate valuation pressures appear to remain highDisruptions caused by the pandemic continue to make it difficult to assess valuations in the CRE sector. Since the November report, CRE price indexes based on transactions recovered from their decline early last year, suggesting elevated pressur
146、es (figure1-12). Furthermore, capitalization rates, which measure annual income relative to prices of commercial prop-erties, have continued to tick down (figure1-13). However, other measures suggest market participants perceive values as having fallen over the past year. For example, an index of th
147、e prices of CRE properties administered by real estate investment trusts (REITs), which supplements observed transactions with appraisal information, remains below pre- pandemic levels.7 Similarly, stock prices of REITs that invest in harder-hit commercial property sectors have increased since Novem
148、ber but generally remain below their respective pre-pandemiclevels.Other indicators continue to show strains in CRE markets. Vacancy rates continue to increase, and rent growth has declined fur-ther. Additionally, delinquency rates on com-mercial mortgage-backed securities (CMBS), which usually cont
149、ain riskier loans, remain elevated. Finally, the January Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) indicated that banks, on net, reported weaker demand for most CRE loans and tighter lending standards in the fourth quarter of 2020 (figure1-14).7 The Green Street price inde
150、x remained below its pre-pandemic level in February. This index is appraisal based, using both sales and nonsales information to track prices of properties managed by REITs.4060800001320172021Jan. 2001 = 100equal-weightedvalue-weightedmonthlyFeb.1-12. Commercial real
151、 estate Prices (real)Source: CoStar Group, Inc., CoStar Commercial repeat Sale Indices; Bureau of Labor Statistics, consumer price index via Haver analytics.5.56.06.57.07.58.08.59.09.510.02001320172021monthlyPercentFeb.1-13. Capitalization rate at Property PurchaseSource: real Capital ana
152、lytics; andrew C. Florance, Norm G. miller, ruijue Peng, and Jay Spivey (2010), “Slicing, Dicing, and Scoping the Size of the u.S. Commercial real estate market,” Journal of Real Estate Portfolio Management, vol. 16 (mayaugust), pp. 10118.0204060802008201220162020Net percentage
153、 of banks reportingeasing TighteningQ4Quarterly1-14. Change in Bank Standards for Commercial real estate LoansSource: Federal reserve Board (FrB), Senior Loan officer opinion Survey on Bank Lending Practices; FrB staff calculations.20 Asset VAluAtionsFarmland prices remain high relative to rentsFarm
154、land prices continued their slow decline at the national leveland at a slightly faster pace in several midwestern statesthrough the second quarter of 2020 (figure1-15). Recent estimates from Reserve Bank surveys suggest prices edged up in the second half of 2020 in the midwestern states where farmla
155、nd values are more elevated. Overall, the ratio of farm-land prices to rents remained elevated relative to historical norms (figure1-16).House price growth continued to increase, and valuations appear high relative to historyThe average growth rate of home prices increased significantly since the pr
156、evious report (figure1-17). Nationwide, house price valuation measures moved up but remain well below the peak of the mid-2000s (figure1-18). House price increases are widespread across regions and property types, and price-to-rent ratios also generally increased across regional markets (figure1-19)
157、.040005000600070000200020102020Annual2019 dollars per acreMedianMidwest indexunited states1-15. Farmland Pricessource: Department of Agriculture; Federal Reserve Bank of Minneapolis staff calculations.50200020102020AnnualRatioMedianMidwest indexunited stat
158、es1-16. Farmland Price-to-Rent Ratiosource: Department of Agriculture; Federal Reserve Bank of Minneapolis staff calculations.200192021Monthly12-month percent changeZillowCorelogicFeb.1-17. Growth of nominal Prices of existing Homessource: Corelogic Real estate Data; Zillow, in
159、c., Zillow Real estate Data.20120112021QuarterlyPercentQ11-18. House Price Valuation Measuresource: For house prices, Zillow; for rent data, Bureau of labor statistics.FINaNCIaL STaBILITY rePorT: maY 2021 21Low levels of interest rates have likely supported robust housing deman
160、d. However, down-side risks to the sector remain, given the unusually large number of mortgage loans in for-bearance programs and the uncertainty around their ultimate repayment.1-19. Selected Local Housing Price-to-rent ratio IndexesSource: For house prices, Zillow; for rent data, Bureau of Labor S
161、tatistics.406080000720092001720192021Jan. 2010 = 100Feb.monthlyPhoenixmiamiLos angelesmedianmiddle 80 percent of markets 23Vulnerabilities from business and household debt have continued to fall since the November report, reflecting continued go
162、vernment support; nonetheless, business-sector debt outstanding remains high relative to incomeVulnerabilities arising from business debt remain elevated, although they have fallen since the middle of last year. Business debt outstanding changed very little in the second half of 2020, and recovering
163、 earnings and the low level of interest rates have generally aided businesses ability to carry debt. Smaller businesses, some of which continue to face significant financial strains, have been supported by government programs, including the Paycheck Protection Program (PPP), which was bolstered in p
164、art by funding from the Federal Reserves Paycheck Protection Program Liquidity Facility (PPPLF).Vulnerabilities arising from household debt are modest. Household borrowing has remained heavily concentrated among borrowers with high credit scores. Government actions taken in response to the pandemic
165、have provided significant support to household balance sheets and incomes, with many households saving more and holding more liquid assets. Still, some households continue to face significant financial stresses.Table 2 shows the amounts outstanding and recent historical growth rates of forms of debt
166、 owed by nonfinancial businesses and households as of the end of2020. Total outstanding private credit was split about evenly between businesses and households, with businesses owing $17.7trillion and households owing $16.6trillion. While business debt increased 9.1percent, on net, over 2020, roughl
167、y one-third, or about $425billion, of this net increase consists of outstanding PPP loans that may be forgiven over coming quarters.The ratio of total nonfinancial debt to gross domestic product remains above its trendFor several years before the pandemic, the combined total debt owed by businesses
168、and households grew at a pace similar to that of nominal GDP. In the first half of 2020, strong business borrowing and a precipitous drop in GDP pushed the credit-to-GDP ratio to his-torical highs. In the second half of 2020, this ratio fell markedly, as GDP partially rebounded and business debt was
169、 little changed (figure2-1). The household debt-to-GDP ratio also declined sharply later in the year, returning to its pre-pandemic range (figure2-2).The ratio of business debt to gross domestic product declined in the second half of 2020Business debt increased little in the second half of 2020, whi
170、le nominal GDP grew 10percent over the same period. Firms paid down their earlier pandemic-driven draws on credit lines, and loan originations fell. A decline in net bond issuance further moderated the increase in business debt in the fourth quarter (figure2-3). Except in some hard-hit industries, c
171、redit-line drawdowns have returned to normal levels. Reduced outlays, recovering profits, 2.Borrowing by Businesses and Households24 BorrowING BY BuSINeSSeS aND HouSeHoLDSTable 2. Outstanding Amounts of Nonfinancial Business and Household CreditItemOutstanding (billions of dollars)Growth, 2019:Q4202
172、0:Q4 (percent)Average annual growth, 19972020:Q4 (percent)Total private nonfinancial credit34,3596.65.6Total nonfinancial business credit17,7199.15.9Corporate business credit11,14510.15.2Bonds and commercial paper7,25710.45.8Bank lending1,5198.83.0Leveraged loans*1,133014.4Noncorporate business cred
173、it6,5747.57.3Commercial real estate credit2,5974.46.1Total household credit16,6404.15.3mortgages10,9354.45.5Consumer credit4,178.15.0Student loans1,7073.78.9auto loans1,2253.24.9Credit cards97511.22.9Nominal GDP21,495.54.0 Note: The data extend through 2020:Q4. Growth rates are measured from Q4 of t
174、he year immediately preceding the period through Q4 of the final year of the period. The table reports the main components of corporate business credit, total household credit, and consumer credit. other, smaller components are not reported. The commercial real estate (Cre) row shows Cre debt owed b
175、y both corporate and noncorporate businesses. The total household-sector credit includes debt owed by other entities, such as nonprofit organizations. GDP is gross domestic product.* Leveraged loans included in this table are an estimate of the leveraged loans that are made to nonfinancial businesse
176、s only and do not include the small amount of leveraged loans outstanding for financial businesses. The amount outstanding shows institutional leveraged loans and generally excludes loan commitments held by banks. For example, lines of credit are generally excluded from this measure. The average ann
177、ual growth rate shown for leveraged loans is computed from 2000 to 2020:Q4, as this market was fairly small before 2000.Source: For leveraged loans, S&P Global, Leveraged Commentary & Data; for GDP, Bureau of economic analysis, national income and product accounts; for all other items, Federal reser
178、ve Board, Statistical release Z.1, “Financial accounts of the united States.”0.81.11.41.72.0765200820020QuarterlyratioQ42-1. Private Nonfinancial-Sector Credit-to-GDP ratioSource: Federal reserve Board staff calculations based on Bureau of economic analysi
179、s, national income and product accounts, and Federal reserve Board, Statistical release Z.1, “Financial accounts of the united States.”FINaNCIaL STaBILITY rePorT: maY 2021 25slow share repurchases, and funds raised through corporate bond issuance contributed to firms holdings of liquid assets. Moreo
180、ver, low interest rates continued to mitigate, to some degree, investor concerns about default risk arising from high leverage. Meanwhile, the net issuance of riskier forms of business debthigh-yield bonds and institutional lev-eraged loanswas solid, on average, over the past three quarters (figure2
181、-4).2-4. Net Issuance of risky Business Debt60402002040608000720092001720192021QuarterlyBillions of dollarsQ1Institutional leveraged loansHigh-yield and unrated bondsSource: mergent, Fixed Income Securities Database; S&P Global, Leveraged Commentary & Data.0.30.40.50.60.70.80.9
182、1.01.10.40.50.60.70.80.91.0765200820020QuarterlyratioratioNonfinancial business (right scale)Household (left scale)Q42-2. Nonfinancial Business- and Household-Sector Credit-to-GDP ratiosSource: Federal reserve Board staff calculations based on Bureau of ec
183、onomic analysis, national income and product accounts, and Federal reserve Board, Statistical release Z.1, “Financial accounts of the united States.”2002200820142020QuarterlyPercent change, annual rateQ42-3. Growth of real aggregate Debt of the Business SectorSource: Federal reserve Board
184、, Statistical release Z.1, “Financial accounts of the united States.”Business debt vulnerabilities remain elevatedAs the growth in outstanding debt slowed appreciably, an indicator of the leverage of large businessesthe ratio of debt to assets for all publicly traded nonfinancial firmsdeclined signi
185、ficantly in the second half of 2020 but still remains modestly above levels seen leading 26 BorrowING BY BuSINeSSeS aND HouSeHoLDSup to the pandemic (figure2-5). An alter-native indicator of business leverage that subtracts cash holdings from debtnet leveragedecreased even more sharply as firms cont
186、inued to stockpile cash. For firms in industries particularly hard hit by the pandemicairlines, hospitality and leisure, and restaurantsgross leverage is still high, but net leverage has been roughly flat over the past year, as these firms borrowed funds to build their cash buffers.As earnings began
187、 to recover and interest rates remained low, the ratio of earnings to interest expenses (the interest coverage ratio) moved up over the second half of last year, suggesting firms were better able to service debt. The interest coverage ratio for the median firm rose to near its historical median (fig
188、ure2-6).An important caveat to these improvements in leverage and interest coverage ratios is that comprehensive data are only available for publicly traded firms. These firms, which tend to be larger, have been able to access capital markets to weather the disruptions of the past year. Small and mi
189、ddle-market firms that are not public, by contrast, frequently have higher leverage than public firms and generally rely on other sources of funding, such as loans from banks, private credit funds, and other investors. Funding from these sources appears to have tightened, on net, over the past year,
190、 potentially leaving these smaller firms more vulnerable to shocks.8Credit quality, which deteriorated after the onset of the pandemic, has stabilized more recently. The pace of corporate bond downgrades came down to normal levels in the second half of last year. The fraction of nonfinancial corpora
191、te bonds that are high yield is little changed since the November report. Around half of nonfinancial investment-grade debt outstanding has the lowest investment-grade rating (triple-B), which is still near an all-time high. Expected bond defaults have continued to decline and are now below their lo
192、ng-run medians. Moreover, because firms have been refinancing existing debt with longer-maturity 8 It is important to note, however, that the credit aggregates shown in figures 2-1, 2-2, and 2-3 include debt from all firms, both public and private.202530354045505520022005200820020Quarterl
193、yPercent75th percentileall firmsQ42-5. Gross Balance Sheet Leverage of Public Nonfinancial BusinessesSource: Federal reserve Board staff calculations based on S&P Global, Compustat.222005200820020QuarterlyratioQ4median25th percentile2-6. Interest Coverage ratios for Public Nonf
194、inancial BusinessesSource: Federal reserve Board staff calculations based on S&P Global, Compustat.FINaNCIaL STaBILITY rePorT: maY 2021 27bonds at low interest rates, only about 5percent of outstanding bonds rated triple-B and about 3percent of outstanding speculative-grade bonds mature within one y
195、ear.Expected default rates on leveraged loans have fallen, although underwriting standards appear to have weakened. The default rate on leveraged loans increased rapidly early in the pandemic but has declined since last summer (figure2-7). Additionally, downgrades of leveraged loans have slowed sign
196、ificantly over the same period, returning to their pre- pandemic pace. However, the share of newly issued loans to large corporations with high leveragedefined as those with ratios of debt to earnings before interest, taxes, depreciation, and amortization greater than 6has exceeded the historical hi
197、ghs reached in recent years (figure2-8).Vulnerabilities from debt owed by small businesses have decreased, but many small businesses remain financially strainedWhile many small businesses closed or significantly scaled back their operations as a result of measures to contain the pandemic, credit qua
198、lity for the small businesses that have con-tinued operating or reopened has stabilized in recent months. Short-term loan delinquencies have declined notably since last summer, and long-term delinquencies have also ticked down, indicating an improvement in firms balance sheets. Loans extended under
199、the PPP have provided financial support to many small businesses. Liquidity provided through the PPPLF continues to facilitate PPP lending, particularly among smaller lenders (see the box “The Paycheck Protection Program Liquidity Facility”). With pandemic-related restrictions on business operations
200、 continuing to be lifted, survey evidence suggests that a declining, though still sizable, share of small firms expect to need additional financial assistance.Stresses on households have decreased, although some households remain vulnerableOver the past year, an unprecedented number of households ex
201、perienced significantly lower earnings due to business closures and unemployment stemming from the COVID-19 pan-2024680032006200920021Percentmar.monthly2-7. Default rates of Leveraged LoansSource: S&P Global, Leveraged Commentary & Data.020406080020022005200820112014
202、20172020PercentDebt multiples 6xDebt multiples 5x5.99xDebt multiples 4x4.99xDebt multiples 4xQ42-8. Distribution of Large Institutional Leveraged Loan volumes, by Debt-to-eBITDa ratioSource: mergent, Fixed Income Securities Database; S&P Global, Leveraged Commentary & Data.28 BorrowING BY BuSINeSSeS
203、 aND HouSeHoLDSdemic. Job losses were heavily concentrated among the most financially vulnerable, including many lower-wage workers and racial and ethnic minorities.The financial positions of many households appear to have improved since the previous Financial Stability Report, supported by a strong
204、er economy. Household incomes and bal-ance sheets have also been broadly and significantly supported by fiscal programsincluding the expanded unemployment insurance and direct stimulus payments in the Consolidated Appropriations Act, 2021, and the American Rescue Plan Act of 2021and by forbearance p
205、rograms that have allowed many households to delay loan payments. In the second half of 2020, aggregate household cash and checkable deposits nearly doubled from about $1.6tril-lion to roughly $3trillion, with notable increases apparent across the income distribution. Still, some households remain f
206、inancially strained and more vulnerable to future shocks.Borrowing by households has continued rising at a modest paceThrough December of last year, household debt (adjusted for general price inflation) edged higher on net. Debt owed by the roughly one-half of households with prime credit scores con
207、tinued to account for almost all of the growth. By contrast, inflation- adjusted loan balances for borrowers with near-prime credit scores changed little over2020, and balances for borrowers with subprime scores fell (figure2-9). This decrease is largely attributable to relatively tight lend-ing sta
208、ndards for such borrowers and to a decline in the share of borrowers with low credit scores, as forbearance programs appear to have contributed to a noticeable upward shift in scores in the bottom of the credit score distribution.The share of mortgages either delinquent or in loss mitigation remains
209、 well above normalMortgage debt accounts for roughly two-thirds of total household credit, with mort-gage extensions skewed toward prime borrowers in recent years (figure2-10). Widespread loss-mitigation measures have helped reduce the effect of the pandemic on mortgage delinquencies (figure2-11).9
210、The share of mortgages that are either delinquent or in loss mitigation was 5.8percent in February2021, down from its recent peak of 8.9percent in May2020.10 Since the November report, many loss-mitigation programs have been extended through at least the summer of this year, providing additional sup
211、port to households.9 “Loss mitigation” is a broad term that describes a variety of programs implemented by lenders to help borrowers cope with payments, including the loan forbearance programs described in the May2020 Financial Stability Report, payment deferrals, loan modifications (including feder
212、al government plans), and loans with no scheduled payments and a nonzero balance.10 Note that some alternative data sources classify mortgages that are in nonpayment status as delinquent, whether or not they are in loss-mitigation, leading to a higher reported delinquency share.0040005000
213、600070008000900000020042008201220162020Billions of dollars (real)QuarterlyPrimeQ4Near primeSubprime2-9. Total Household Loan BalancesSource: Federal reserve Bank of New York Consumer Credit Panel/equifax; Bureau of Labor Statistics, consumer price index via Haver analytics.FINaNCIaL STaBI
214、LITY rePorT: maY 2021 29Borrowers still in mortgage forbearance may be more vulnerable to the end of government support as well as to adverse shocks. Survey evidence suggests that these borrowers are more likely to be employed in industries hard hit by the pandemic, to have suffered income losses in
215、 the past year, and to be delinquent or in forbearance on other forms of debt. Even so, a large fraction of borrowers have already exited forbearancein general, these borrowers have loans that are either current or paid off.At the same time, the significant growth in house prices over the past year,
216、 noted earlier in this report, has contributed to the very low estimated share of outstanding mortgages with negative equity (figure2-12). The ratio of outstanding mortgage debt to home values at the end of last year remains at a modest level (figure2-13).Consumer credit edged downMost of the remain
217、ing one-third of total debt owed by households is consumer credit, which consists mainly of student loans, auto loans, and credit card debt (figure2-14). Table2 shows that consumer credit edged down in 2020 and currently stands at a little more than $4trillion. Auto loan balances expanded moderately
218、, on net, over 2020, driven entirely by borrowers with prime and near-prime credit scores (figure2-15).02004006008000Billions of dollars (real)20022005200820020annualSubprimeNear primePrime2-10. estimates of New mortgage volumes to HouseholdsSource: Federal reserve Bank of New
219、York Consumer Credit Panel/equifax; Bureau of Labor Statistics, consumer price index via Haver analytics.0246800920152021PercentDelinquentDelinquent/loss mitigationFeb.Quarterly/monthly2-11. mortgage Loss mitigation and DelinquencySource: Federal reserve Bank of New York Consumer Credit P
220、anel/equifax.0220020PercentDec.Q4ZillowCoreLogic2-12. estimates of mortgages with Negative equitySource: CoreLogic real estate Data; Zillow, Inc., Zillow real estate Data.608002008201220162020Quarterly1999:Q1 = 100Q4relative to model-implied valuesrelative
221、 to market value2-13. estimates of Housing LeverageSource: Federal reserve Bank of New York Consumer Credit Panel/equifax; CoreLogic; Bureau of Labor Statistics via Haver analytics.30 BorrowING BY BuSINeSSeS aND HouSeHoLDSAlthough conditions for many households have improved, some households continu
222、e to struggle to make consumer debt paymentsAfter jumping to a peak of about 9percent in June2020 in response to the COVID-19 out-break, the share of auto loans that were either delinquent or in loss mitigation declined to 4.5percent in February (figure2-16). Many auto loan borrowers in loss mitigat
223、ion have not made a payment in several months. As of February, nearly 3.5percent of all auto loans had received no payments since November, although a large fraction of those loans were in loss mitigation.Consumer credit card balances contracted sharply in 2020 in response to depressed con-sumer spe
224、nding, declines in credit card utilization rates, and a drop in new card originations (figure2-17). Some evidence suggests that the share of credit card balances in forbearance has declined notably from last summer but remains above its pre-pandemic levels. The share of credit card balances in delin
225、quency was roughly flat for borrowers with prime and near-prime credit scores between October and December, following earlier declines, while delin-quency rates for borrowers with subprime scores ticked up in December (figure2-18).Finally, the risk that student loan debt poses to the financial syste
226、m appears limited at this time. Most of the loans were issued through government programs and are owed by house-holds in the top 40percent of the income distribution. Moreover, protections originally introduced in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)and later extendedgu
227、arantee payment forbearance and stop interest accrual through Septem-ber2021 for most federal student loans.0246852009201320172021PercentDelinquentDelinquent/loss mitigationFeb.Quarterly/monthly2-16. auto Loss mitigation and DelinquencySource: Federal reserve Bank of New York Consumer Cre
228、dit Panel/equifax.0350400450500550600650700750200020042008201220162020Billions of dollars (real)QuarterlyPrimeQ4Near primeSubprime2-15. auto Loan BalancesSource: Federal reserve Bank of New York Consumer Credit Panel/equifax; Bureau of Labor Statistics, consumer price index via Haver anal
229、ytics.2004006008000020042008201220162020QuarterlyBillions of dollars (real)Student loansauto loansCredit cardsQ42-14. Consumer Credit BalancesSource: Federal reserve Bank of New York Consumer Credit Panel/equifax; Bureau of Labor Statistics, consumer price index via Haver analy
230、tics.FINaNCIaL STaBILITY rePorT: maY 2021 30250300350400450500200020042008201220162020QuarterlyBillions of dollars (real)PrimeQ4Near primeSubprime2-17. Credit Card BalancesSource: Federal reserve Bank of New York Consumer Credit Panel/equifax; Bureau of Labor Statistics, consumer price in
231、dex via Haver analytics.05002200820142020QuarterlyPercentQ4PrimeNear primeSubprime2-18. Credit Card Delinquency ratesSource: Federal reserve Bank of New York Consumer Credit Panel/equifax.32 BorrowING BY BuSINeSSeS aND HouSeHoLDSThe Paycheck Protection Program Liquidity FacilityThe PPP wa
232、s established at the outset of the pandemic by the CARES Act to provide payroll support to small businesses and other small organizations. Under the PPP, lenders make loans that are guaran-teed by the Small Business Administration (SBA) and are forgivable if the borrower uses the proceeds to keep wo
233、rkers on its payroll and to pay related expenses. The PPP opened on April3, 2020, and closed on August8, 2020. Following the enactment of the Economic Aid to Hard-Hit Small Businesses, Nonprofi ts, and Venues Act (Economic Aid Act), the PPP reopened on January11, 2021, and the SBA will stop receivin
234、g applications for PPP loans on May31, 2021. Through March28, 2021, the SBA has approved 8.7million PPP loans totaling $734billion.On April9, 2020, the Federal Reserve, with the approval of the Secretary of the Treasury, announced the establishment of the PPPLF as an emergency lending program under
235、section 13(3) of the Fed-eral Reserve Act. The PPPLF was designed to bolster the effectiveness of the PPP by supplying liquidity to SBA-approved PPP lenders and to increase those lenders capacity and confi dence to make PPPloans. On April16, 2020, the PPPLF began operations by making advances to ban
236、ks.1 On April30, 2020, the Federal Reserve expanded the PPPLF to include all PPP lenders, including nonbanks.Under the PPPLF, the Federal Reserve provides nonrecourse advances to PPP lenders that pledge PPP loans. As PPP loans are fully guaranteed by the SBA, the PPPLF takes the PPP loans as collate
237、ral at face value. The terms of the PPPLF that provide support to the PPP include the following: The PPPLF provides complete, risk-free, matched-maturity funding for pledged PPP loans. PPP lenders may obtain PPPLF funding for whole PPP loans that they have purchased as well as those that they origin
238、ated. For banks, PPP loans receive a 0percent risk weight under risk-based capital rules, and PPP loans that are pledged to the PPPLF are excluded from leverage ratio calculations.2The PPPLF was originally scheduled to terminate on September30, 2020; the termination date has since been extended to J
239、une30, 2021.PPPLF program usageAs shown in table A, the PPPLF has been the most heavily used of the emergency lending facilities established by the Federal Reserve to support the continued fl ow of credit to households, businesses, and state and local governments during the pandemic.3 More than 850
240、PPP lendersfrom all 50 states and the District of Columbia and including almost 70 nonbankshave taken out PPPLF advances . For 1 as used here, the term “banks” consists of all types of depository institutions, including savings associations and credit unions.2 For more information on the regulatory
241、capital effects of banks participation in the PPPLF, see Board of Governors of the Federal reserve System, Federal Deposit Insurance Corporation, and office of the Comptroller of the Currency (2020), “Federal Bank regu-lators Issue Interim Final rule for Paycheck Protection Program Facility,” joint
242、press release, april9, https:/www.federalreserve.gov/newsevents/pressreleases/bcreg20200409a.htm. 3 more information on the other Federal reserve facilities is available on the Boards website at https:/www.federalreserve.gov/funding-credit-liquidity-and-loan-facilities.htm. (continued)FINaNCIaL STaB
243、ILITY rePorT: maY 2021 33lenders that have not participated in the PPPLF, the existence of the facility may have provided comfort in continuing to make PPP loans with the knowledge that funding is available if needed.The PPPLF has provided important support for enabling mission-oriented community de
244、velopment fi nancial institutions (CDFIs), minority depository institutions (MDIs), and other small banks to support very small businesses. Among banks that have participated in the facility, community banks (those with $10billion or less in assets) have received more than 90percent of the advances
245、from the PPPLF. Moreover, about 100 CDFIs and MDIs, which provide fi nancial services to economically underserved communities, have borrowed from the PPPLF.As shown in fi gure A, the dollar volume of PPPLF advances outstanding rose sharply following the facilitys establishment and reached a peak of
246、more than $70billion in early August2020. Starting in August, outstanding advances declined slowly as new PPP lending stopped after the programs 2020 closure and as some PPPLF participants prepaid their advances. Advances declined more steeply later in 2020 as the SBA began making forgiveness paymen
247、ts on PPP loans. When payments (including FacilityAmountoutstanding,3/31/2021(billions of dollars)Peak Wednesday amountoutstanding(billions of dollars)Date of peak Wednesday amountoutstandingProgramtermination datePrimary Dealer Credit Facility (PDCF)033.44/15/20203/31/2021money market mutual Fund L
248、iquidity Facility (mmLF) .3 53.24/8/20203/31/2021Commercial Paper Funding Facility (CPFF)04.25/13/20203/31/2021Paycheck Protection Program Liquidity Facility (PPPLF)58.570.87/29/20206/30/2021Secondary market Corporate Credit Facility (SmCCF)14.014.11/6/202112/31/2020municipal Liquidity Facility (mLF
249、)6.26.412/23/202012/31/2020Term asset-Backed Securities Loan Facility (TaLF)2.34.112/23/202012/31/2020Primary market Corporate Credit Facility (PmCCF)00 12/31/2020main Street Lending Program (main Street)16.516.61/13/20211/8/2021memo: Discount window Primary Credit since 3/15/2020.950.83/25/2020 Not
250、 applicable. Source: Federal reserve Board, Statistical release H.4.1, “Factors affecting reserve Balances”; Federal reserve Bank of New York, Commercial Paper Funding Facility Data.Table A. Funding, Credit, Liquidity, and Loan Facilities(continued on next page)34 BorrowING BY BuSINeSSeS aND HouSeHo
251、LDSforgiveness payments) are made on pledged PPP loans, PPPLF participants are obligated to pay down the associated PPPLF advances. In January2021, new PPP lending resumed, and PPPLF advances outstanding began increasing again.The net decline in PPPLF advances since their peak almost entirely refl e
252、cts declines in advances to banksthe dashed line in fi gure A. In contrast, PPPLF advances to nonbanksthe dotted line continued to increase in late 2020, even while there was no new PPP lending, and have accelerated since PPP lending resumed in 2021.Factors affecting PPPLF borrowing by banks and non
253、banksPPPLF borrowing by banks declined in the latter part of 2020, reportedly in part because of PPPLF participants prepaying their advances after deciding that they no longer needed the PPPLF liquidity. As shown in fi gure B, banks experienced signifi cant deposit growth starting in spring 2020, re
254、sulting in an increase in low-cost funding for many banks. In addition, as shown in fi gure C, the cost of term bank funding sources, which was relatively elevated immediately after the onset of the pandemic, has fallen to levels closer to the PPPLF lending rate of 35 basis points, providing many ba
255、nks with more afford-able alternatives to the PPPLF.Nonbank participants in the PPPLF include established SBA community lenders, such as CDFIs and SBLCs (small business lending companies), as well as newer types of institutions, such as fi ntechs. (continued)The Paycheck Protection Program Liquidity
256、 Facility (continued)5161718Mar.Sept.Mar.Sept.Mar.201920202021WeeklyTrillions of dollarsMar.1Figure B. Liquid Deposits at BanksSource: Federal reserve Board, Statistical release H.6, “money Stock measures.”Figure a. PPPLF advances outstanding020406080Apr.JulyOct.Jan.Apr.20202021Business d
257、ayBillions of dollarsTo all institutionsTo banksTo nonbanksMar.31Source: Federal reserve Bank of minneapolis, Paycheck Protection Program Liquidity Facility data.FINaNCIaL STaBILITY rePorT: maY 2021 35Nonbanks are important PPP lenders, as they may reach businesses that banks are not serving, such a
258、s very small businesses or businesses in economically distressed areas, and their average PPP loan size is signifi cantly smaller than that of banks. Nonbanks typically lack the funding base and access to funding sources that banks enjoy, making access to the PPPLF potentially important for their ab
259、ility to make PPP loans. The lack of funding alternatives is likely an important reason why nonbank PPPLF borrowing has continued to increase.Figure C. Bank Term Funding alternativesCOVID-19 onsetApr.JulyOct.Jan.Apr.20202021Weekly averagePercentMar.291 year2 yearsPPPLF rateFed funds target range (lo
260、wer bound)0.00.20.40.60.81.01.21.41.6Source: Bloomberg Finance L.P.; Federal Home Loan Bank of Des moines. 37Table 3. Size of Selected Sectors of the Financial System, by Types of Institutions and VehiclesItemTotal assets (billions of dollars)Growth, 2019:Q42020:Q4 (percent)Average annual growth, 19
261、972020:Q4 (percent)Banks and credit unions23,45417.06.2mutual funds19,56310.810.0Insurance companies12,27810.06.1Life9,3379.86.2Property and casualty2,94111.05.8Hedge funds*8,0971.88.6Broker-dealers3,6766.04.9Outstanding (billions of dollars)Securitization11,3306.75.4agency10,0947.36.0Non-agency*1,2
262、362.53.2 Note: The data extend through 2020:Q4. Growth rates are measured from Q4 of the year immediately preceding the period through Q4 of the final year of the period. Life insurance companies assets include both general and separate account assets.* Hedge fund data start in 2012:Q4 and are updat
263、ed through 2020:Q3. Growth rates for the hedge fund data are measured from Q3 of the year immediately preceding the period through Q3 of 2020.* Non-agency securitization excludes securitized credit held on balance sheets of banks and finance companies.Source: Federal reserve Board, Statistical relea
264、se Z.1, “Financial accounts of the united States”; Federal reserve Board, “enhanced Finan-cial accounts of the united States.”Leverage at banks and broker-dealers remains low, while leverage at hedge funds and life insurance companies continues to be highTable 3 shows the sizes and growth rates of t
265、he types of financial institutions discussed in this section.Bank capital ratios rose above pre-pandemic levels, though some heightened credit risk remains Banks have weathered the pandemic well. The common equity Tier 1 ratioa regulatory risk-based measure of bank capital adequacyincreased, on net,
266、 over the past year for most banks (figure3-1). Over the second half of 2020, profitability recovered, credit quality held up much better than many had expected, and the largest banks reduced capital distributions amid3. Leverage in the Financial Sector38 LeveraGe IN THe FINaNCIaL SeCTormandatory ca
267、ps on dividends and restrictions on share repurchases.11 Even so, rapid growth in low-risk assets like central bank reserves, Treasury securities, and government-guaranteed PPP loans raised total assets significantly. As a result, the ratio of tangible capital to total assets at large banks remained
268、 below pre-pandemic levels through the end of 2020 (figure3-2).In December, the Federal Reserve released results from the second round of bank stress tests for 2020, which assessed the resilience of large banks under two hypothetical scenarios with severe global downturns and substantial stress in f
269、inancial markets.12 The analysis showed that risk-based capital ratios for all banks would remain above the minimum requirements under both scenarios.13 Given banks resilience, the Federal Reserve announced that it would allow banks to resume share repurchases in the first quarter of 2021 as long as
270、 the total 11 See Board of Governors of the Federal Reserve System (2020), “Federal Reserve Board Announces It Will Extend for an Additional Quarter Several Measures to Ensure That Large Banks Maintain a High Level of Capital Resilience,” press release, September30, https:/www.federalreserve.gov/new
271、sevents/pressreleases/bcreg20200930b.htm.12 See Board of Governors of the Federal Reserve System (2020), “Federal Reserve Board Releases Hypothetical Scenarios for Second Round of Bank Stress Tests,” press release, September17, https:/www.federalreserve.gov/newsevents/pressreleases/bcreg20200917a.ht
272、m.13 See Board of Governors of the Federal Reserve System (2020), “Federal Reserve Board Releases Second Round of Bank Stress Test Results,” press release, December18, https:/www.federalreserve.gov/newsevents/pressreleases/bcreg20201218b.htm. 3-2. ratio of Tangible Bank equity to assets Source: Fede
273、ral Financial Institutions examination Council, Call report Form FFIeC 031, Consolidated reports of Condition and Income (Call report).0246862002200820142020QuarterlyPercent of total assetsother BHCsLarge nonG-SIBsG-SIBsQ43-1. Common equity Tier 1 ratio of BanksSource: Federal reserve Boa
274、rd, Form Fr Y-9C, Consolidated Financial Statements for Holding Companies.02468004200620082001620182020Percent of risk-weighted assetsother BHCsLarge nonG-SIBsG-SIBsQ4QuarterlyFINaNCIaL STaBILITY rePorT: maY 2021 39payouts, including dividends, did not exceed their average quar
275、terly net income from the pre-vious four quarters. On March25, the Federal Reserve announced that the additional restric-tions on capital distributions would end on June30 for banks that maintained capital ratios in excess of their minimum risk-based capital requirements in the 2021 stress test.14 M
276、easures of the credit quality of bank loans have improved since the November report, as fiscal and monetary policy support mitigated the effect of the pandemic. However, credit risk remains elevated in the business sectors most affected by the pandemic as well as in some commercial property segments
277、. The share of loan balances in loss-mitigation programs at the largest banks has declined, especially for consumer and small business loans. But the shares of commercial and industrial (C&I), CRE, and residential mortgage loans in loss mitigation have remained elevated. The lever-age of firms with
278、existing C&I loans from the largest banks declined during the second half of 2020, though it stayed somewhat elevated relative to historical levels (figure3-3). Over the same period, delinquency rates remained about unchanged for most types of loans but rose for CRE loans secured by COVID-affected p
279、roper-ties, such as hotels and retail properties. While delinquencies have generally been flat, some uncertainty remains about whether the credit quality of bank loans will hold up after loss-mitigation programs end and govern-ment support runs out. In response to a set of special forward-looking qu
280、estions in the January2021 SLOOS, banks, on balance, reported they expect loan quality to deteriorate for most loan categories later this year. Nevertheless, banks willingness to lend is apparently increasing in some cases. Banks, reflecting changes at the largest banks, generally reported that they
281、 had eased lending standards during the fourth quarter of 2020 for C&I loans to large and medium-sized firms (figure3-4). Banks built up substantial loan loss allowances in the first half of last year, and that buffer against a future deterioration in asset quality remained well above pre-pandemic l
282、evels for all loan categories. Following improvements in the economic outlook, banks significantly reduced the pace of additional loan loss provisioning during the second half of last year for most loan categories.15 The only exception was CRE loans, for which banks continued to build allowances, co
283、nsistent with the elevated credit risk in this segment. 14 See Board of Governors of the Federal Reserve System (2021), “Federal Reserve Announces Temporary and Additional Restrictions on Bank Holding Company Dividends and Share Repurchases Currently in Place Will End for Most Firms after June30, Ba
284、sed on Results from Upcoming Stress Test,” press release, March25, https:/www.federalreserve.gov/newsevents/pressreleases/bcreg20210325a.htm. 15 Under accounting rules, banks prepare for possible loan losses before they occur. Loan loss provisions, in the banks income statement, are expenses set asi
285、de for uncollected loan payments and are added to the allowance for loan and lease losses 3-3. Borrower Leverage for Bank Commercial and Industrial LoansSource: Federal reserve Board, Form Fr Y-14Q (Schedule H.1), Capital assessments and Stress Testing.2426283032343620020QuarterlyDebt as
286、percent of assetsQ4Non-publicly-traded firmsPublicly traded firms40 LeveraGe IN THe FINaNCIaL SeCTorA key factor in banks ability to accumulate equity capital has been bank profitability measured as either return on equity or return on assetswhich recovered during the second half of 2020. The reduct
287、ion in loan loss provisions contributed notably to this recovery. In addition, trading and investment banking revenues were robust. Nonetheless, bank prof-itability remains under pressure from historically low net interest margins and uncertainty about the credit quality of loans exiting loss-mitiga
288、tion programs. Based on preliminary data for the first quarter of 2021, profitability at the U.S. global systemically important banks (G-SIBs) continued to be strong, although one G-SIB announced a large loss from prime brokerage activities. Leverage is at historically low levels at broker-dealers .
289、 . .Broker-dealer leverage remained near histor-ically low levels through the fourth quarter of2020 (figure3-5). Net borrowing of pri-mary dealers has decreased somewhat since the November report but remains higher than in recent years, as dealers continue to finance sizable inventories of Treasury
290、securities. No notable effect on Treasury market function-ing followed the expiration in March2021 of temporary changes to the supplementary leverage ratio (SLR), which were implemented to ease strains in Treasury market intermedi-ation during the onset of the pandemic. To ensure that the SLRestabli
291、shed in 2014 as an additional capital requirementremains effective in an environment of higher reserves, the Board will soon be inviting public comment on several potential SLR modifications.16(ALLL), which is renamed “allowance for credit losses” for banks adopting the Current Expected Credit Losse
292、s methodol-ogy. On a banks balance sheet, total loans are reported net of ALLL. More information on ALLL is available on the Boards website at https:/www.federalreserve.gov/supervisionreg/topics/alll.htm.16 See Board of Governors of the Federal Reserve System (2021), “Federal Reserve Board Announces
293、 That the Temporary Change to Its Supplementary Leverage Ratio (SLR) for Bank Holding Companies Will Expire as Scheduled on March31,” press release, March19, https:/www.federalreserve.gov/newsevents/pressreleases/bcreg20210319a.htm.3-5. Leverage at Broker-DealersSource: Federal reserve Board, Statis
294、tical release Z.1, “Financial accounts of the united States.”0996200020042008201220162020Quarterlyratio of assets to equityQ43-4. Change in Bank Lending Standards for Commercial and Industrial LoansSource: Federal reserve Board, Senior Loan officer opinion Survey on Bank Lending Practices
295、; Federal reserve Board staff calculations.0204060802008201220162020QuarterlyNet percentage of banks reportingeasing TighteningQ4FINaNCIaL STaBILITY rePorT: maY 2021 41. . . and is high at life insurance companies Leverage at life insurance companies remains high (figure3-6). L
296、ife insurers invest heavily in corporate bonds and hold CLOs, which leaves them vulnerable to risks from elevated leverage in the corporate sector. They also invest heavily in CRE debt. If the performance of their debt holdings deteriorates, life insurers capital posi-tions could be impaired. Meanwh
297、ile, based on information through the fourth quarter of2020, leverage at property and casualty insurers stayed at low levels relative to historical averages.Available measures of hedge fund leverage are somewhat above average but may not be capturing important risksWhile data on hedge fund leverage
298、come from different sources with various lags, most measures increased in the second half of 2020 and are now somewhat above their historical averages, reversing the decrease in the first half of the year amid the March2020 market turmoil. Gross leverage at hedge funds, as reported in publicly avail
299、able Securities and Exchange Commission (SEC) disclosures, fell in the first half of 2020, the most recent data available, but the average remained near 2018 levels (figure3-7).17 In addition, several indi-cators of leverage intermediated by dealers on behalf of hedge funds, such as hedge funds marg
300、in and securities borrowing in prime brokerage accounts, suggest that hedge fund leverage associated with equity market activ-ities is at high levels. More recently, in the Senior Credit Officer Opinion Survey on Dealer Financing Terms, around one-fifth of dealers, on net, reported hedge fund client
301、s reducing their use of leverage between September and November2020; dealers reported hedge funds use of leverage as basically unchanged from December2020 to February2021 (figure3-8). Overall, the available data suggest that leverage remains somewhat elevated at hedge funds. The FSOC has restarted i
302、ts Hedge Fund Working Group to better share data, identify risks, and strengthen the financial system. A few recent episodes have highlighted the opacity of risky exposures and the need for greater transparency at hedge funds and other leveraged financial entities that can transmit stress to 17 Comp
303、rehensive data on hedge fund leverage are available only with a long lag. The Federal Reserve supplements these data with more timely but less comprehensive measures in developing its assessment of vulnerabilities from hedge fund leverage.3-6. Leverage at Insurance CompaniesSource: National associat
304、ion of Insurance Commissioners, quarterly and annual statutory filings accessed via S&P Global market Intelligence, S&P Capital IQ. 03695200820020Quarterlyratio of assets to equityLifeProperty and casualtyQ43-7. Gross Leverage at Hedge FundsSource: Securities and exchange Commi
305、ssion, Form PF, reporting Form for Investment advisers to Private Funds and Certain Commodity Pool operators and Commodity Trading advisors.20020monthlyratiomeanmedianJune42 LeveraGe IN THe FINaNCIaL SeCTorthe financial system. For example, some hedge funds with substantial sho
306、rt positions sus-tained losses during the meme stock episode in January2021, when intense social media activ-ity contributed to fluctuations in the prices of some specific stocks, though the effects on the hedge fund sector overall appear to have been limited (see the box “Vulnerabilities from Asset
307、 Valuations, Risk Appetite, and Low Interest Rates” in the Asset Valuations section). In a separate episode in late March, a few banks took large losses when a highly leveraged family office, Archegos Capital Management, was unable to meet margin calls related to total return swap agreements and oth
308、er positions financed by prime brokers.18 Price declines in the concentrated stock positions held by Archegos triggered the margin calls, prompting sales of the stock positions, which led to further declines in the prices of affected stocks and, ultimately, substantial losses for some banks. While b
309、roader market spillovers appeared lim-ited, the episode highlights the potential for material distress at NBFIs to affect the broader financial system.Although overall securitization volumes remained subdued, issuance of collateralized loan obligations and nonmortgage asset-backed securities was ele
310、vated Securitization allows financial institutions to bundle loans or other financial assets and sell claims on the cash flows generated by these assets as tradable securities, much like bonds. Examples of the resulting securities include CLOs (predominantly backed by leveraged loans), ABS (often ba
311、cked by credit card and auto debt), CMBS, and residential mortgage- backed securities (RMBS). By funding assets with debt issued by investment funds knows as “special purpose entities” (SPEs), securitization can add leverage to the financial system, in part because SPEs are generally subject to rule
312、s such as risk retention that are less stringent than banks regulatory capital requirements.19 In addition, the process commonly involves the creation of securities, or “tranches,” with different levels of seniority. As a result, securiti-zation allows the creation of highly rated securities from po
313、ols of lower-rated assets. 18 Family offices are private firms that manage wealth on behalf of their owners and are exempt from registration with the SEC; thus, they are not subject to disclosing their size or leverage.19 Following the Dodd-Frank Wall Street Reform and Consumer Protection Act of 201
314、0, federal financial regulatory agencies introduced credit risk retention rules that required sponsors of securitization vehicles to retain a minimum share of the credit risk for any asset that the sponsor transfers, sells, or conveys to a third party through securitization.3-8. Change in the use of
315、 Financial LeverageSource: Federal reserve Board, Senior Credit officer opinion Survey on Dealer Financing Terms.8060402002040602000021QuarterlyNet percentageHedge fundsTrading reITsInsurance companiesmutual fundsQ1FINaNCIaL STaBILITY rePorT: maY 2021 43On balance, i
316、ssuance volumes of non-agency securitiesthat is, those securities not guaran-teed by a government-sponsored enterprise (GSE) or by the federal governmentremained subdued and ended last year 20percent below their 2019 levels despite support from the Term Asset-Backed Securities Loan Facility (TALF) (
317、figure3-9). Issuance recovered some-what in the first quarter of 2021, though the recovery was uneven across asset classes. Amid increased investor risk appetite, CLO and ABS issuance was elevated, whereas non-agency CMBS and RMBS issuance was weak during the first quarter. CLO securitization has gr
318、own rapidly in recent years, with investors attracted by higher yields. Although recently issued CLOs have been relatively sounder than the structures in use before the 200709 financial crisis, the value of lower-rated tranches may be highly sensitive to performance of the underlying loans.20 As a r
319、esult, leveraged investors, such as hedge funds, may be vulnerable if they have substantial exposures to these lower-rated tranches and the underlying loans experience losses. In 2021, CLO issuance rose to a record pace through March that was about 100percent above its average monthly issuance volum
320、e from the same period last year, and about 75percent above its average volume for that same period from 2016 through 2020. In addition, a record volume of CLOs was refinanced or restructured, as CLO managers sought to lower their liability costs amid tighter market spreads. Meanwhile, CLO fundament
321、als have improved, following a notable deterioration in 2020. While certain collateral metrics, such as average loan ratings or holdings of triple-C-rated loans, are worse than their pre-pandemic levels, they have improved significantly relative to mid-2020.Bank lending to nonbank financial institut
322、ions rose to pre-pandemic levels by the end of 2020Bank lending to NBFIs represents a potential channel for transmission of stress from one part of the financial system to another. Committed amounts of credit from large banks to NBFIs, which consist mostly of revolving credit lines and include undra
323、wn amounts, increased in the latter part of last year and reached a record $1.6trillion by year-end 20 Unlike open-end mutual funds, CLOs do not generally permit early redemptions or rely on funding that must be rolled over before the underlying assets mature. Also, recent CLOs provide higher levels
324、 of subordination to better protect senior tranche holders than before the 200709 financial crisis. As a result, CLOs are generally considered more “sound” because they avoid the run risk associated with a rapid reversal in investor sentiment and have less embedded leverage.3-9. Issuance of Non-agen
325、cy Securitized Products, by asset ClassSource: Green Street advisors, LLC, Commercial mortgage alert () and asset-Backed alert (); Bureau of Labor Statistics, consumer price index via Haver analytics.04008000240028002000720092001720192021Billions of dollars (real)ann
326、ualotherPrivate-label rmBSNon-agency CmBSauto loan/lease aBSCDos (including aBS CDos and CLos)44 LeveraGe IN THe FINaNCIaL SeCTor(figure3-10).21 The increase was driven by lending to open-end investment funds; SPEs, including CLOs and ABS; real estate lenders and lessors; and other financial vehicle
327、s (figure3-11).22 These credit-line commitments provide NBFIs with liquidity insurance and a backstop to meet heightened investor redemptions or disruptions in the short-term funding markets in which they operate. As such, the credit lines represent contingent commitments from banks that can support
328、 increases in financial leverage during times of stress. Indeed, the utilization rates of NBFIs credit lines spiked in March2020 but generally fell back to normal levels during the second half of last year. Delinquency rates on loans by large banks to NBFIs were higher in the second half of 2020 tha
329、n before the pandemic, but they remained below delinquency rates on C&I loans to nonfinancial firms. The relatively modest delinquency rates on loans to NBFIs partly reflect actions by the Department of the Treasury and the Federal Reserve that stabilized funding markets and produced marketwide effe
330、cts that reduced liquidity risks at NBFIs. 21 The Federal Reserve is able to monitor the exposures of the largest U.S. banks to NBFIs because those banks report detailed information about their loan commitments on regulatory form FR Y-14Q, available on the Boards website at https:/www.federalreserve
331、.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDZGWnsSjRJKDwRxOb5Kb1hL.22 Open-end investment funds include mutual funds and exchange-traded funds. Other financial vehicles include mostly private closed-end investment funds and trusts.3-10. Large Bank Lending to Nonbank Financial Firms: Committed
332、amountsSource: Federal reserve Board, Form Fr Y-14Q (Schedule H.1), Capital assessments and Stress Testing.Billions of dollars02505007500920201. Financial transactions processing2. Private equity, BDCs, and credit funds3. Broker-dealers4. Insurance5. reITs8. other financial veh
333、icles9. real estate lenders and lessorsQ46. open-end investment funds7. Special purpose entities, CLos, and aBSQuarterly10. Consumer lenders, other lenders, and lessors3-11. Growth of Loan Commitments and utilization to Nonbank Financial Institutions in 2020, by SectorSource: Federal rese
334、rve Board, Form Fr Y-14Q (Schedule H.1), Capital assessments and Stress Testing. 20reITsInsuranceCommitted amountsutilized amountsPercentotherfinancialvehiclesrealestatelenders& lessorsSPes,CLos,& aBSopen-endinvestmentfundsBroker-dealersPe,BDCs,& creditfundsConsumerleasing,otherlendersFin
335、ancialtransactionsprocessingTotal 45Vulnerabilities from liquidity and maturity mismatches remain low at large banks, but structural vulnerabilities persist at some types of money market funds as well as bond and bank loan mutual fundsIn 2020, the total amount of liabilities that are potentially vul
336、nerable to runs, including those of nonbanks, is estimated to have increased 13.6percent to $17.7trillion, as shown in table4; that amount was equivalent to about 85percent of GDP (figure4-1). Much of this net increase reflected growth in uninsured deposits and government MMF assets under management
337、. This growth more than offset declines in the second half of the year in the size of prime and tax-exempt MMFs, which are particularly vulnerable to runs. Meanwhile, bond mutual funds continued to grow, on net, in 2020.Table 4. Size of Selected Instruments and InstitutionsItemOutstanding/ total ass
338、ets (billions of dollars)Growth,2019:Q42020:Q4 (percent)Average, annual growth, 19972020:Q4 (percent)Total runnable money-like liabilities* 17,71613.64.7uninsured deposits 6,84532.711.5Domestic money market funds* 4,33319.35.1Prime 54329.9.3Government 3,68535.516.1Tax-exempt 10523.32.4repurchase agr
339、eements 4,016.95.7Commercial paper 9875.61.8Securities lending* 63710.15.8Bond mutual funds 4,93811.69.0 Note: The data extend through 2020:Q4. Growth rates are measured from Q4 of the year immediately preceding the period through Q4 of the final year of the period. Total runnable money-like liabili
340、ties exceeds the sum of listed components. Items not included in the table are variable-rate demand obligations, federal funds, funding-agreement-backed securities, private liquidity funds, offshore money market funds, short-term investment funds, and local government investment pools.* average annu
341、al growth is from 2003:Q4 to 2020:Q4.* average annual growth is from 2001:Q4 to 2020:Q4.* average annual growth is from 2000:Q4 to 2020:Q4.Source: Securities and exchange Commission, Private Funds Statistics; imoneyNet, Inc., offshore money Fund analyzer; Bloomberg FinanceL.P.; Securities Industry a
342、nd Financial markets association: u.S. municipal variable-rate Demand obligation update; risk management association, Securities Lending report; DTCC Solutions LLC, an affiliate of the Depository Trust & Clearing Corporation: commercial paper data; Federal reserve Board staff calculations based on I
343、nvestment Company Institute data; Federal reserve Board, Statistical releaseH.6, “money Stock and Debt measures” (m3 monetary aggregate); Federal reserve Board, Statistical release Z.1, “Financial accounts of the united States”; Federal Financial Institutions examination Council, Consolidated report
344、s of Condition and Income (Call report); morningstar, Inc., morningstar Direct; moodys analytics, Inc., Creditview, asset-Backed Commercial Paper Program Index.Funding Risk4.46 FuNDING rISkAs noted in previous Financial Stability Reports, rapid redemptions from MMFs and fixed-income mutual funds con
345、tributed to market turmoil at the start of the pandemic, and Federal Reserve actions in the form of emergency lending facilities and regulatory relief pro-vided support to prime and tax-exempt MMFs. Although flows and activities in associated markets have since returned to typical levels, structural
346、 vulnerabilities remain at NBFIs such as some types of MMFs as well as bond and bank loan mutual funds. Regulatory agencies are exploring options for reforms that will address these vulnerabilities.Domestic banks continue to have high levels of liquid assets and stable fundingDomestic banks maintain
347、 large amounts of high-quality liquid assets. They rely only mod-estly on short-term wholesale funding, in part because of liquidity regulations and super-visory programs introduced after the 200709 financial crisis as well as banks improved understanding and management of their liquidity risks.23 M
348、ost recently, liquidity ratios were well above regulatory requirements at most large domes-tic banks. Liquid assets surged through the fourth quarter of 2020, reflecting an increase in central bank reserve balances (figure4-2). In addition, domestic banks reliance on short-term wholesale funding fel
349、l sharply last year ( figure4-3). Instead, domestic banks received large deposit inflows throughout the pandemic, in part as a result of fiscal stimulus, precautionary savings, and the reallocation of portfolios toward safe assets by households and businesses.2423 The large increase in uninsured dep
350、osits shown in table4 is mostly excluded from this definition of short-term wholesale funding.24 Much of the increase in bank deposits was driven by insured retail deposits and operational corporate deposits, which are relatively stable sources of funding. For other deposit types, the outflow risk i
351、s largely offset by the increase in banks high-quality liquid assets, which stand at historically high levels.QuarterlyPercent of GDP0204060800052008200201. other2. Securities lending3. Commercial paper4. Domestic money market funds5. repurchase agreements6. uninsured depositsQ
352、46543214-1. runnable money-Like Liabilities as a Share of GDP, by Instrument and InstitutionSource: Securities and exchange Commission, Private Funds Statistics; imoneyNet, Inc., offshore money Fund analyzer; Bloomberg FinanceL.P.; Securities Industry and Financial markets association: u.S. municipa
353、l variable-rate Demand obligation update; risk management association, Securities Lending report; DTCC Solutions LLC, an affiliate of the Depository Trust & Clearing Corporation: commercial paper data; Federal reserve Board staff calculations based on Investment Company Institute data; Federal reser
354、ve Board, Statistical release H.6, “money Stock and Debt measures” (m3 monetary aggregate); Federal reserve Board, Statistical release Z.1, “Financial accounts of the united States”; Federal Financial Institutions examination Council, Consolidated reports of Condition and Income (Call report); moody
355、s analytics, Inc., Creditview, aBCP asset-Backed Commercial Paper Program Index; Bureau of economic analysis, gross domestic product via Haver analytics.FINaNCIaL STaBILITY rePorT: maY 2021 47To a larger extent than domestic banks, FBOs have an active role in global U.S. dollar fund-ing markets and
356、rely on short-term wholesale funding (see the box “Vulnerabilities in Global U.S. Dollar Funding Markets”).Structural vulnerabilities remain at prime and tax-exempt money market fundsAssets under management at prime and tax-exempt MMFs have declined since the middle of last year, but vulnerabilities
357、 at these funds remain and call for structural fixes. In particular, assets under management at prime MMFs declined over the second half of last year, when some large prime funds closed or converted to government funds, and they have continued to decline modestly since then (figure4-4). However, vul
358、nerabilities associated with liquidity transformation at these funds remain prominent. A fund engages in liquidity transformation by offering daily redemptions to investors even when the funds underlying assets may be monthlyBillions of dollars (real)075003750450052506000200072
359、009200. Government only2. Tax exempt3. retail prime4. Institutional prime1234Jan.4-4. Domestic money market Fund assetsSource: Federal reserve Board staff calculations based on Investment Company Institute data; Bureau of Labor Statistics, consumer price index via Haver analyti
360、cs.554020022005200820020Percent of assetsQ4Quarterly4-3. Short-Term wholesale Funding of BanksSource: Federal reserve Board, Form Fr Y-9C, Consolidated Financial Statements for Holding Companies.048220042008201220162020QuarterlyPercent of assetsQ4other BHCsLarge nonG
361、-SIBsG-SIBs4-2. Liquid assets Held by BanksSource: Federal reserve Board, Form Fr Y-9C, Consolidated Financial Statements for Holding Companies.48 FuNDING rISkdifficult to sell quickly. The Presidents Working Group on Financial Markets released a report in December2020 outlining potential reforms to
362、 address risks from the MMF sec-tor.25 Subsequently, the SEC issued a request for comment on these potential reforms.26 If properly calibrated, some of these reformssuch as swing pricing, a minimum balance at risk, and capital bufferscould significantly reduce the run risk associated with MMFs. Mean
363、while, the Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility, which were deployed during the COVID-19 pandemic to backstop short-term funding markets, expired at the end of March with no material effect on these markets.Other cash-management vehicles, such as doll
364、ar-denominated offshore funds and short-term investment funds, also invest in money market instruments and are vulnerable to runs, and some of these vehicles experienced heavy redemptions in March2020. Currently, between $400billion and $1trillion of these vehicles assets are in portfolios similar t
365、o those of U.S. prime funds, and a new wave of redemptions could destabilize short-term funding markets. The Financial Stability Boards (FSB) Holistic Review of the March Market Turmoil high-lighted vulnerabilities from NBFIs, including from these cash management vehicles. The FSB, coordinating with
366、 other international organizations, will continue work that addresses risk factors that amplified stress and furthers an understanding of systemic risks in NBFIs and policies that could address these risks.Bond and bank loan mutual funds benefited from net inflows but are exposed to risks due to lar
367、ge holdings of illiquid assetsMutual funds that invest substantially in cor-porate bonds and bank loans may be particu-larly exposed to liquidity transformation risks, given the option of daily redemptions and the relative illiquidity of their assets.27 U.S. cor-porate bonds held by mutual funds inc
368、reased substantially to $1.8trillion in the fourth quarter of 2020, well above pre-pandemic levels and about one-sixth of outstanding U.S. corporate bonds (figure4-5). High-yield bond funds and bank loan mutual funds primarily 25 See U.S. Department of the Treasury (2020), “Presidents Working Group
369、on Financial Markets Releases Report on Money Market Funds,” press release, December22, https:/home.treasury.gov/news/press-releases/sm1219.26 See U.S. Securities and Exchange Commission (2021), “SEC Requests Comment on Potential Money Market Fund Reform Options Highlighted in Presidents Working Gro
370、up Report,” press release, February4, https:/www.sec.gov/news/press-release/2021-25.27 See Kenechukwu Anadu and Fang Cai (2019), “Liquidity Transformation Risks in U.S. Bank Loan and High-Yield Mutual Funds,” FEDS Notes (Washington: Board of Governors of the Federal Reserve System, August9), https:/
371、www.federalreserve.gov/econres/notes/feds-notes/liquidity-transformation-risks-in-US-bank-loan-and-high-yield-mutual-funds-20190809.htm.QuarterlyBillions of dollars (real)030060090002200820020Q44-5. u.S. Corporate Bonds Held by mutual FundsSource: Federal reserve Boa
372、rd staff estimates based on Federal reserve Board, Statistical release Z.1, “Financial accounts of the united States”; Bureau of Labor Statistics, consumer price index via Haver analytics.FINaNCIaL STaBILITY rePorT: maY 2021 49hold riskier and less liquid corporate debt. By February2021, total asset
373、s under manage-ment at these funds rose above pre-pandemic levels (figure4-6).The record outflows in March2020 from mutual funds, including taxable and municipal bond funds, highlighted the structural vul-nerabilities in the sector, because some were forced to sell assets even when the correspond-in
374、g markets were illiquid. Since then, mutual funds have benefited from sizable overall inflows amid improved investor sentiment and several emergency credit facilities that provided a backstop for market liquidity (figure4-7). These facilitieswhich included the Primary Market Corporate Credit Facilit
375、y, the Secondary Market Corporate Credit Facility, and the Municipal Liquidity Facilityexpired at the end of 2020 with no notable effect on mutual fund flows.060100monthlyBillions of dollarsFeb.mayaug.Nov.Feb.mayaug.Nov.Feb.mayaug.Nov.Feb.mayaug.Nov.Feb.202182017Investment-grad
376、e bond mutual fundsBank loan mutual fundsHigh-yield bond mutual funds4-7. mutual Fund Net FlowsSource: Investment Company Institute.monthlyBillions of dollars (real)0755450525200020032006200920021Bank loan mutual fundsHigh-yieldbond mutual fundsFeb.4-6. Bank Loan and High-Yield
377、 Bond mutual Fund assetsSource: Investment Company Institute; Bureau of Labor Statistics, consumer price index via Haver analytics.Central counterparties are less vulnerable to a spike in market volatilitySince the November Financial Stability Report, central counterparty (CCP) collateral requiremen
378、ts have remained high relative to expected market volatility. In addition, CCP cash balances at the Federal Reserve have increased as a share of total resources.28 As a result, CCP vulnerability to a spike in market volatility is lower than it was on the eve of the pandemic. Elevated collateral requ
379、irements also mitigate the potential pro-cyclicality of margin calls on trading firms should volatility increase. Nevertheless, in late January, concen-trated trading of some meme stocks led to substantial margin increases on equity trades and equity option positions, which challenged some brokers i
380、n those markets.28 CCPs financial resources include cash and collateral with low credit, liquidity, and market risks. Clearing members post these assets to the CCP to satisfy initial margin and default fund requirements. These resources are available to the CCPs to cover losses in the event that a c
381、learing member defaults.50 FuNDING rISkLiquidity risks at life insurers are at post-2008 highs and have been increasingOver the past decade, the gap has widened between the liquidity of life insurers assets and the liquidity of their liabilities, potentially making it harder for them to meet a sudde
382、n rise in withdrawals and other claims. Life insurers have been increasing the share of illiquid, risky assets on their balance sheets. These assetsincluding CRE loans, less liquid corporate debt, and alternative investmentsedged up to 35percent of general account assets, the same level as just befo
383、re the 200709 financial crisis (figure4-8).29 Meanwhile, after dipping during the financial crisis, the share of more easily redeemable liabilities remains above its pre-crisis level, in part due to increasing nontraditional liabilities (figure4-9).29 Life insurers assets and liabilities are divided
384、 between the general account and separate accounts. In the separate accounts, each policyholder selects a portfolio of assets from a menu offered by the insurer, and the performance of that portfolio is reflected in the value of the insurers liability to that policyholder. The assets in the general
385、account are pooled and selected by the insurer to meet future payment obligations to all general account policy and other liability holders, with any remain-der becoming profit for the insurance company.0500300350QuarterlyBillions of dollars (real)200620082001620182020FHLB adva
386、ncesQ4020406080201620182020QuarterlyBillions of dollars (real)repurchase agreementsSecurities lendingQ4Funding-agreement-backed securities4-9. Nontraditional Liabilities of u.S. Life Insurers, by Liability TypeSource: Bureau of Labor Statistics, consumer price index via Haver analytics; m
387、oodys analytics, Inc., Creditview, asset-Backed Commercial Paper Program Index; Securities and exchange Commission, Forms 10-Q and 10-k; National association of Insurance Commissioners, quarterly and annual statutory filings accessed via S&P Global market Intelligence; Bloomberg Finance L.P.02505007
388、500025002750000620082001620182020Billions of dollarsPercent share4. alternative investments5. Illiquid corporate debt6. Illiquid corporate debt, securitized1. other asset-backed securities2. Commercial real estate3. Commercial real estate, securitizedShare
389、 of life insurer assets (left scale)Share of P&C insurer assets (left scale)4-8. Less Liquid General account assets Held by u.S. InsurersSource: Staff estimates based on data from Bloomberg Finance L.P. and National association of Insurance Commissioners annual Statutory Filings.FINaNCIaL STaBILITY
390、rePorT: maY 2021 51LIBOR Transition UpdateThe transition away from LIBOR passed several notable milestones recently. Most important, on March5, 2021, the LIBOR administrator and regulator provided clarity on the end dates of the publi-cation of LIBORs as representative, panel-based rates. Separately
391、, in January2021, the Inter national Swaps and Derivatives Association (ISDA) IBOR Fallbacks Protocol took effect, inserting robust fallback language in derivatives contracts referencing LIBOR for parties that adhere to the protocol. In addition, New York State recently enacted legislation proposed
392、by the Alternative Refer ence Rates Committee (ARRC) that minimizes legal uncertainty and adverse economic effects associated with LIBOR-based contracts that do not have effective fallback language, an important step because of the large number of securities issued under New York State law. With the
393、 legislation, these contracts will move to the ARRCs recommended alternative, the Secured Overnight Financing Rate (SOFR), and recommended spread adjustments. Collectively, these actions have solidifi ed the framework for the transition away from LIBOR. Growth in market use of LIBOR alternatives, ho
394、wever, continues to be uneven.TimelineOn November30, 2020, the LIBOR administrator, ICE Benchmark Administration (IBA), announced a market consultation on its proposal to cease publication of the most widely used U.S. dollar (USD) LIBOR tenors immediately after June30, 2023.1 Following this announce
395、ment, the Federal Reserve Board, the Offi ce of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation jointly provided guidance encouraging banks to stop new use of USD LIBOR as soon as practicable and, in any event, by the end of 2021. On March5, 2021, IBA published its con
396、clusion from its mar-ket consultation and, with the U.K. Financial Conduct Authority, confi rmed the end dates proposed in November. On March9, 2021, the Federal Reserve Board reinforced its position with guidance that instructs bank examiners to review supervised fi rms planning for, and progress i
397、n, moving away from LIBOR during examinations and other supervisory activities in 2021.The announcements provided clarity on the timing of LIBOR cessation. While supervisory guidance encourages new use of USD LIBOR to wind down this year, the extension of key USD LIBOR tenors through June2023 will a
398、llow a signifi cant portion of legacy contracts to mature naturally.By the time ISDAs IBOR Fallbacks Protocol took effect on January25, 2021, almost all major deriva-tives market participants had adhered to the new protocol, helping to ensure a successful rollout, and adherence has continued to grow
399、 since the effective date. ISDA confi rmed that the March5 announce-ment fi xed the spreads to be used in the Fallbacks Protocol. The announcement likewise had the effect of fi xing the spreads for LIBOR-based contracts with fallback language recommended by the ARRC.2 However, there is no comparable
400、 protocol mechanism for cash products, and, in many cases, there are no effective ways to update fallback language in legacy contracts.1 The announced consultation followed a mid-November proposal to cease publication of sterling, yen, Swiss franc, and euro LIBors at the end of 2021.2 ISDas spread a
401、djustments are based on the historical five-year median difference between each specific LIBor currency and tenor and the associated fallback rate, which, in the case of uSD LIBor, will be a compound average of SoFr. The arrC has stated that its recommended spread adjustments for cash products will
402、match those of ISDa, although certain technical adjustments will be made to the arrCs recommendations for consumer products to ensure that consumers do not see a jump in rates at the time of the uSD LIBor cessation.(continued on next page)52 FuNDING rISkLegislationThe regulatory clarity provided by
403、the March5, 2021, announcement still leaves many market par-ticipants, including retail borrowers, exposed to contractual uncertainty when USD LIBOR ceases in mid-2023. To promote a smooth transition, New York State recently enacted legislation clarifying that, by operation of law, a SOFR-based rate
404、 will replace LIBOR in legacy LIBOR contracts that are ambig-uous or silent regarding fallback rates. Most U.S. securities are governed by New York law, so the New York State legislation will reduce transition risks related to inadequate contractual language. Legislation has also been proposed at th
405、e federal level to address contracts without a workable fallback that, if enacted, would reduce transition risks on a nationwide basis.The recently enacted New York State legislation is primarily aimed at securities, which are diffi cult to amend due to the complexities in reaching agreement among t
406、he holders of these instruments, but it also includes a safe harbor that would encourage the use of ARRC fallbacks for consumer products (where the lender tends to have discretion to name a successor rate). Table A illustrates the challenges in replacing LIBOR in legacy contracts that, in many cases
407、, envision a polling process similar to that used to create LIBOR. It is unlikely, however, that the current LIBOR banks would choose to respond to private polling after stepping away from the LIBOR panels.(continued)LIBOR Transition Update (continued)Table A. Legacy Contract Provisions in the Absen
408、ce of LIBORFinancial instrumentsTypical existing fallbacksTypical consent requirementsto change fallbacksoTC uncleared derivativesBank pollConsent of counterpartiesCleared derivativesCCP designated successor rate(key CCPs have indicated that they will match ISDa)NoneFloating-rate NotesBank poll. If
409、n.a., then fixed rate at last quoted LIBorunanimous consent among bond-holdersSecuritizations Bank poll. If n.a., then fixed rate at last quoted LIBor agency mBS allow issuer selection or fallback to last quoted LIBorunanimous consentBusiness loans Bank poll. If n.a., then alternative base rate (pri
410、me rate or fed funds rate plus spread, 300+ basis points above LIBor). Some bilateral loans have no fallback recent syndicated loans allow agent to select a replacement Syndicated loans: unanimous consent of lenders Bilateral loans: agreement between borrower and lendermortgages/consumer loansLender
411、 selectionChosen by lenderother paymentsother contractual payments(for example, purchase agreements, sales contracts) typically have no fallback provisionsConsent of counterpartiesNote: oTC is over-the-counter. CCP is central counterparty. ISDa is International Swaps and Derivatives association. mBS
412、 is mortgage-backed security. n.a. is not available. Source: alternative reference rate Committee. FINaNCIaL STaBILITY rePorT: maY 2021 53The unanimous consent required to change multiparty contracts is an especially high hurdle for Float-ing Rate Notes (FRNs) and securitizations. While legislation
413、provides contractual clarity, it does not eliminate the need for operational changes in interest rates for payments after June30, 2023.Issuance and trading activityThe move to SOFR margining and discounting by major clearinghouses in October2020 led to a sustained increase in SOFR swaps trading, wit
414、h growth particularly strong for longer-dated swaps ( fi gureA). In the futures markets, the return to the zero lower bound has damped trading in all short-end derivatives, but SOFR-referencing contracts have maintained their market share (fi gure B).Open interest in SOFR derivatives stands at $6tri
415、llion, which signals good market development but is still modest relative to the open interest in derivatives referencing LIBOR or the effective fed funds rate (fi gure C). While the increased SOFR derivatives activity at longer maturities is a positive sign, limited growth in short-dated SOFR deriv
416、atives, and the continued use of LIBOR derivatives, led the ARRC to note that it may not be able to recommend a forward-looking term SOFR rate by midyear. The ARRC (continued on next page)Figure a. SoFr Swaps Notional volumesSource: Bloomberg Finance L.P.0500300Billions of dollarsFeb.MayA
417、ug.Nov.Feb.MayAug.Nov.Feb.Monthly totalsMore than 5 years45 years13 years181365 days91180 days090 days20510152025DailyPercentFeb.26Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec.Jan.Feb.1-month SOFR as a proportion of fed funds rate3-month SOFR as a proportion of Eurodollars20202021Figure B. SoF
418、r Futures open Interest as a Proportion of Fed Funds and eurodollarsSource: Bloomberg Finance L.P.54 FuNDING rISkalso noted that it had envisioned a limited application of SOFR term rates and encouraged market participants to make use of the existing forms of SOFR.The use of SOFR in cash markets has
419、 grown appreciably in certain products, but progress has been slow in other areas. SOFR FRN issuance is now greater than that for LIBOR as a result of GSE and bank issuance. The fi rst nonfi nancial corporate SOFR FRN issuance took place in February2021. Con-sumer loans have also begun to actively t
420、ransition from LIBOR: Fannie Mae and Freddie Mac began accepting SOFR adjustable-rate mortgages (ARMs) in 2020 and stopped accepting new LIBOR ARMs at the start of this year.The business loan market, however, continues to predominantly reference LIBOR. A recently published progress report from the A
421、RRC included responses to a survey of nonfi nancial corporate borrow-ers indicating that most banks are not yet offering LIBOR alternatives or communicating about the alternatives that they will offer. Given the size of the business loan market and the need for borrower preparedness, the reported la
422、ck of communication is a concern.The ARRC has pointed to securitizations as another area where the transition from LIBOR has been slow. Although Freddie Mac has issued several successful SOFR securitizations, most new securitiza-tions continue to reference LIBOR.LIBOR Transition Update (continued)01
423、02030405060Billions of dollarsMaAug.Nov.Feb.MayAug.Nov.Feb.MayAug.Nov.Feb.MayMonthlyAverage daily volumeMedian daily volume20021Figure C. Trading volumes in Cmes Front-month SoFr Futures ContractSource: Cme Group.FINaNCIaL STaBILITY rePorT: maY 2021 55Vulnerabilities in Global U.S. Dollar
424、 Funding MarketsThe U.S. dollar is the leading global funding and investment currency, is used widely for trade and other international transactions, and currently accounts for almost half (more than $22trillion) of outstanding cross-border bank credit and international debt securities. The wide use
425、 of the dollar generates signifi cant benefi ts to both U.S. and foreign residents: It expands the sources of funding to businesses and households; deepens the market for dollar-denominated securities, including U.S. government debt; and can reduce transaction costs for international trade in goods
426、and services. The international role of the dollar has signifi cant benefi ts, but it also provides a conduit through which stresses can be transmitted across borders. Although there are other sources of vulnerabili-ties in global dollar funding markets, this discussion focuses on the role of FBOs (
427、foreign banks that have U.S. offi ces) in these markets, the way FBOs may transmit stress in these markets to the United States, and the role of central bank liquidity swap line arrangements in alleviating those stresses.1Foreign banking organizations are key participants in lending and borrowing in
428、 dollars in the United States and abroadGlobal economic activity depends on credit and payments fl owing smoothly and effi ciently, and the central role of the dollar in international fi nance means that well-functioning dollar funding in the United States and abroad plays a critical role. FBOs serv
429、e as important conduits of dollar funding to and from U.S. and foreign businesses, governments, households, and NBFIs. Foreign banks, primarily FBOs, supply $15trillion of dollar-denominated credit (equivalent to more than 17percent of world GDP), which is about half of the total global dollar credi
430、t outstanding of banks.2 FBOs are the principal dollar lenders to non-U.S. residents and also supply more than one-third of dollar bank credit outstanding to U.S. residents (fi gure A). For example, the U.S. offi ces of FBOs supply almost one-fourth of total C&I lending by commercial banks and U.S.
431、branches of FBOs in the United States. FBOs are also large borrowers in U.S. short-term dollar funding markets, 1 Foreign banks are entities organized under the laws of a foreign country that engage directly in the business of banking outside the united States. FBos include foreign banks that contro
432、l a bank or operate a branch or agency in the united States. a regulatory defini-tion of an FBo is available on the electronic Code of Federal regulations website at https:/www.ecfr.gov/cgi-bin/text-idx?SID=d37ef2568e628d9d079d528521151085&mc=true&node=se12.2.211_121&rgn=div8.2 This fraction measure
433、s the global dollar credit (assets) of FBos ($15trillion) as a proportion of the global dollar credit of all banks, which, in contrast to the cross-border credit mentioned in the preceding paragraph, includes the dollar credit from u.S. banks to u.S. residents and excludes credit from nonbanks (such
434、 as nonbank investors holdings of securities).051015Foreign bank creditU.S. bank credit8.31.47.012.0Trillions of U.S. dollarsNon-U.S.residentsU.S.residentsFigure a. Dollar-Denominated Bank Credit, by Bank Nationality and Location of CounterpartySource: Bank for International Settlements (BIS) locati
435、onal statistics by residence and by nationality; BIS consolidated banking statistics; Federal reserve Board staff calculations.(continued on next page)56 FUNDING RISkaccounting for the majority of outstanding repurchase agreement (repo) borrowing, commercial paper, and negotiable certifi cates of de
436、posit in U.S. markets (fi gure B).3Foreign banking organizations can transmit funding stresses to the United StatesFBOs, in general, rely less on insured U.S. retail deposits and thus depend more on wholesale fund-ing markets to fi nance their dollar assets than do U.S. banks. Moreover, a large and
437、growing fraction of the dollar liabilities of FBOs are supplied by non-U.S. residents (fi gure C).4 While the adoption of liquidity requirements has improved the resilience of the intermediate holding companies (IHCs) of foreign banks, these requirements do not currently apply in full to their U.S.
438、branches, although these branches are subject to the consolidated liquidity requirements established by their home country regulators.5 If dollar funding markets seize up, FBOs can be disproportionately affected. In cases when FBOs cannot roll over dollar funding, they may abruptly reduce lending to
439、 U.S. households and busi-nesses or liquidate holdings of U.S. assets, thereby transmitting stresses to the U.S. economy.3 Figure B refers to foreign borrowers, but these are primarily FBOs.4 Figure C refers to all foreign banks, but FBOs account for the bulk of foreign bank liabilities.5 Large FBOs
440、 with $50 billion or more in U.S. non-branch assets are required under the rules implementing the Dodd-Frank Acts enhanced prudential standards to place virtually all of their U.S. subsidiaries under a top-tier U.S. IHC. Branches of FBOs are not required to be part of the IHC.Vulnerabilities in Glob
441、al U.S. Dollar Funding Markets (continued)054:Q22020:Q2UnassignedNon-U.S. residents, home countryNon-U.S. residents, otherU.S. residentsTrillions of U.S. dollarsFigure C. Dollar-Denominated Liabilities of Foreign Banks, by Country of CounterpartySource: Bank for International Settlements
442、(BIS) locational statistics by residence and by nationality; BIS consolidated banking statistics; Federal Reserve Board staff calculations.012345RepurchaseagreementsCommercialpaperNegotiableCDsForeign borrowersU.S. borrowers49%51%4.767%1.088%.5Trillions of U.S. dollarsFigure B. Outstanding U.S. Shor
443、t-Term Funding Instruments, by Borrower OriginSource: Federal Reserve Bank of New York; DTCC SolutionsLLC, an affiliate of the Depository Trust & Clearing Corporation; Federal Reserve Board (FRB), Statistical ReleaseZ.1, “Financial Accounts of the United States”; FRB, Form FR 2004, Government Securi
444、ties Dealers Reports; FRBstaff calculations.(continued)FINaNCIaL STaBILITY rePorT: maY 2021 57Swap lines relieved stresses in dollar funding markets in March2020The COVID-19 shock hit U.S. and global dollar funding markets simultaneously. Specifi cally, stresses in U.S. money markets reduced access
445、to U.S. short-term wholesale fi nancing for FBOs, while the cost of offshore dollar funding spiked. At the same time, the dollar funding needs of FBOs jumped as U.S. customers drew on credit lines, and the demand for hedging U.S. dollar exposures increased.The enhancement and expansion of the Federa
446、l Reserves dollar liquidity swap line arrangements with foreign central banks relieved stresses for FBOs.6 These arrangements with foreign central banks helped restore stability in dollar funding markets and limit additional spillovers to other fi nancial markets in the United States and abroad. Add
447、itionally, the Federal Reserve introduced the temporary FIMA (Foreign and International Monetary Authorities) Repo Facility, which allows foreign and interna-tional monetary authorities to temporarily exchange their Treasury securities with the Federal Reserve for U.S. dollars (a repurchase agreemen
448、t), thus giving these authorities access to dollar liquidity when needed. This facility provides a reliable source of dollar liquidity to a broad range of countries, many of which do not have swap line arrangements with the Federal Reserve. Although draws on the FIMA Repo Facility have been small, t
449、he facility can still provide signifi cant benefi ts to market functioning by eliminating the need for its users to sell U.S. assets, including Treasury securities, in order to build up precautionary dollar liquidity.Swap line usage supported credit to U.S. businesses and confidence in dollar market
450、sDuring the spring 2020 COVID-19 shock, FBOs borrowed dollars in foreign central banks dol-lar auctions, which were funded by those cen-tral banks liquidity swap lines with the Federal Reserve. Use of the dollar auctions helped FBOs fulfi ll their credit commitments to U.S. businesses and boost thei
451、r liquid asset buffers without having to sell dollar assets or further strain offshore dollar funding markets. FBOs headquartered in the euro area and Japan accounted for the majority of swap-line-funded dollars auctioned in spring 2020 (fi gure D). These foreign banks lent their U.S. offi ces a lar
452、ge amount of the funds obtained in the auctions.76 The Federal reserves swap lines are with foreign central banks, which then provide dollars to FBos in their jurisdictions via their dollar operations.7 Technically, dollars obtained through auctions funded by swap lines are credited either to a corr
453、espondent bank in the united States that hosts an account for the foreign bank or, more commonly, to the u.S. branch of the borrowing FBo. In the latter case, the funds are immediately recorded as lending from the foreign parent bank to the u.S. branch. Nonetheless, the relationship shown in figure
454、e, where the amounts of swap drawings are similar to the amounts of increased borrowing from abroad and assets held by u.S. offices of FBos for march2020, is not mechanical or inevitable. rather than funds being remitted from the FBos branch to the parent bank, 00500Billions of U.S. dolla
455、rsApr.JuneAug.Oct.Dec.Feb.WeeklyOtherSNBBOEECBBOJ20202021Figure D. Central Bank Dollar Swaps outstanding during CovID-19Source: Federal reserve Bank of New York, “u.S. Dollar Liquidity Swap amounts outstanding.” (continued on next page)58 FuNDING rISkIn fi gure E, this lending is refl ected in the i
456、ncreased net borrowing from abroad by U.S. offi ces of European and Asian FBOs in March2020 (the blue bars), which amounts to more than three-fourths of the dollars auctioned that month (the tan bars). In part, U.S. branches of FBOs used these dollars to increase their reserve balances at the Federa
457、l Reserve (reserve balances are a primary component of “cash,” the red bars). Amid the volatile environment of COVID-19, these reserves gave market participants confi dence that FBOs would be able to manage further shocks to dollar funding or credit demand without adverse effects. Dollars obtained f
458、rom the auctions also supported increased lending by U.S. branches of FBOs to U.S. businesses (the pink bars) as U.S. customers drew their credit lines.8these funds remained on the balance sheets of u.S. branches days and weeks after being credited and were used largely to fund u.S. lending and rese
459、rve balances at the Federal reserve.8 The pink bars in figure e represent the change in all loans by u.S. branches of FBos, but a large majority of the change is in C&I loans to u.S. addressees.0500300Centralbank swapsauctionedChanges in select assetsof U.S. branchesCentralbank swapsaucti
460、onedChanges in select assetsof U.S. branchesBillions of U.S. dollarsChange in netborrowingfrom abroadby U.S. officesChange in netborrowingfrom abroadby U.S. officesCashLoansCashLoansEuropean banksAsian banksFigure e. Changes in march 2020 to Central Bank Liquidity Swaps auctioned and Balance Sheets
461、of Foreign Banking organizations u.S. officesSource: Treasury International Capital; Federal Financial Institutions examination Council, reporting Form FFIeC 002, report of assets and Liabilities of u.S. Branches and agencies of Foreign Banks; Federal reserve Board (FrB) Form Fr 2644, Selected asset
462、s and Liabilities of Domestically Chartered Commercial Banks and u.S. Branches and agencies of Foreign Banks; FrB staff calculations; central bank swap auction results.Vulnerabilities in Global U.S. Dollar Funding Markets (continued) 59Positive vaccine-related news, additional fiscal support, better
463、-than-expected economic data, and accommodative monetary policy have supported favorable financial conditions and high prices of risky assets. Yet the ultimate extent and duration of the pandemic remain some of the most significant risks to the financial system. The realization of this risk continue
464、s to depend largely on the success of public health measures and the vaccination campaign, on the steps households and businesses take to resume economic activity, and on the support provided by economic policy and the remaining government lending and relief programs.The Federal Reserve routinely en
465、gages in discussions with domestic and international policy-makers, academics, community groups, and others to gauge the set of risks of particular concern to these groups. As noted in the box “Salient Shocks to Financial Stability Cited in Market Outreach,” contacts were mostly focused on the risk
466、that COVID-19 variants would become resistant to currently available vaccines, thereby inhibiting the economic recovery or causing another downturn. The following analysis considers possible interactions of existing vulnerabilities with three broad categories of risk, some of which were also raised
467、in the dis-cussions of vulnerabilities: a downturn in U.S. economic activity or a significant reduction in the pace of the ongoing economic recovery, risks emanating from Europe, and risks from adverse developments in EMEs, including China.Less than anticipated progress with respect to the pandemic
468、could pose risks to the financial systemIf the pandemic persists longer than anticipatedespecially if new variants of the virus prove resistant to available vaccinesdownward pressure on the U.S. economy could derail the ongoing recovery. If those developments occurred, a number of the vulnerabilitie
469、s identi-fied in this report could interact with the negative shock to the economy and pose additional risk to the U.S. financial system: Asset prices, which have increased in recent months, could suffer significant declines; highly leveraged nonfinancial firms could see their profits weaken, leadin
470、g to financial stress and defaults; and the finances of households, especially those that are financially fragile, could deteriorate, leading to defaults and further pressure on banks and other lenders.Although leverage is low at banks and broker-dealers, the leverage of some NBFIs, such as life ins
471、urance companies and some hedge funds, is high, exposing them to sharp drops in asset prices and funding risks. Furthermore, prime MMFs as well as bond and bank loan mutual funds are vulnerable to funding strains and sudden redemptions. Stress in the finan-cial system could further interact with pot
472、ential risks from new digital payment systems, including stablecoin arrangements. These associated risks may require additional safeguards, and regulators are monitoring these developments.3030 See, for instance, Lael Brainard (2020), “An Update on Digital Currencies,” speech delivered at the Federa
473、l Reserve Board and Federal Reserve Bank of San Franciscos Innovation Office Hours, San Francisco (via webcast), August13, Near-Term Risks to the Financial System60 Near-Term rISkS To THe FINaNCIaL SYSTemStresses emanating from a lingering pandemic in Europe also pose risks to the United States beca
474、use of strong transmission channelsEuropean financial institutions play an important role in global financial intermediation and have notable financial and economic linkages with the United States. Therefore, finan-cial stress in Europe stemming from the adverse consequences of a lingering pandemic
475、could negatively affect the United States. European economies adapted better this winter to declines in mobility and surges in the virus than last spring. Despite this resilience, the winter surge in COVID-19 cases and extended social-distancing measures weighed on the regions economy, which was sti
476、ll struggling to recover from the depths of the pandemic. As such, European authorities have continued to maintain supportive fiscal and monetary policies as well as bank regulatory and supervisory measures such as forbearance. Nevertheless, if efforts to contain the virus fail and real activity rem
477、ains depressed, asset quality may dete-riorate materially more than is already expected. If current supportive policies prematurely wear off or new ones are unable to offset the negative effects from this scenario, some sys-temically important European financial institutions could incur notable cred
478、it losses. Stresses in Europe could, in turn, affect the U.S. economy and financial system through a further deterioration in risk appetite, a pullback in lending from European banks to U.S. households and businesses, and losses due to large direct and indirect credit exposures.Adverse developments
479、in emerging market economies spurred in part by a further rise in long-term interest rates could spill over to the United StatesIn EMEs, difficulties in containing the virus, a possible further rise in long-term interest rates, and waning fiscal capacity pose near-term risks to financial stability.
480、In particu-lar, many highly indebted EME sovereigns and corporations are vulnerable to a sudden increase in debt-servicing costs from sharp rises in global interest rates. If this increase in debt-servicing costs is not accompanied by an improvement in the global economic outlook, some EMEs could ag
481、ain see significant capital outflows, which could be exacerbated by a drop in global risk appetite or problems in EME banking systems. Under these circum-stances, authorities may find it difficult to address the negative economic and financial con-sequences because of limited fiscal capacity. Widesp
482、read and persistent EME stress could, in turn, have repercussions for the United States. While faced with more challenging global market conditions, U.S. financial institutions would be subject to heightened risks from both their direct exposures to stressed EME firms and sovereigns as well as their
483、 indirect expo-sures through U.S. businesses with strong links to EMEs.Despite Chinas relatively strong economic rebound from the pandemic, it continues to have elevated corporate and local government debt, a vulnerable financial sector, and stretched real estate valuations. Although government poli
484、cy is still supportive of the broader econ-https:/www.federalreserve.gov/newsevents/speech/brainard20200813a.htm; and Randal K. Quarles (2021), “The FSB in 2021: Addressing Financial Stability Challenges in an Age of Interconnectedness, Innovation, and Change,” speech delivered at the Peterson Insti
485、tute for International Economics, Washington (via webcast), March30, https:/www.federalreserve.gov/newsevents/speech/quarles20210330a.htm.FINaNCIaL STaBILITY rePorT: maY 2021 61omy, Chinese authorities have introduced measures to cool down property markets. If these measures fail to limit speculatio
486、n, financial vulnerabilities will continue to rise. Under such a scenario, a sudden correction in domestic property markets could put pressure on Chinese property developers and other firms and substantially stress the financial sector. Given the size of Chinas economy and financial system as well a
487、s its extensive trade linkages with the rest of the world, financial stresses in China could further strain global financial markets and negatively affect the United States.62 Near-Term rISkS To THe FINaNCIaL SYSTemSalient Shocks to Financial Stability Cited in Market OutreachAs part of its market i
488、ntelligence gathering, Federal Reserve staff solicited views from a wide range of contacts on risks to U.S. fi nancial stability. From early February to early April, the staff surveyed (continued)Percent0070CREBank asset qualityEM stressSLR extensionUnder-regulated nonbanksCryptocurrencie
489、s/stablecoinsReach for yield/leverageCyber attacksTGA drawdown/debt ceilingRisky asset valuations/correctionU.S.China tensionsInflation surgeSharp rise in real interest ratesVaccine-resistant variantsSource: Federal reserve Bank of New York survey of 24 market contacts from early February to early a
490、pril.Spring 2021: most Cited Potential Shocks over Next 12 to 18 monthsSource: Federal reserve Bank of New York survey of 24 market contacts from early September to mid-october.007080LIBOR transitionCyber attacksBrexitGeopolitical risksSharp rise in real interest ratesCRE defaults/CMBS st
491、ressBank asset quality/bank profitabilityMonetary policy space/efficacyUSD collapse/currency warInflation surprisesU.S.China tensionsStretched asset valuationsCOVID resurgenceInsufficient fiscal stimulusCorporate & SME stress/defaultsU.S. political uncertaintyPercentFall 2020: most Cited Potential S
492、hocks over Next 12 to 18 monthsFINaNCIaL STaBILITY rePorT: maY 2021 6324market contacts, including professionals at broker-dealers, investors, political advisory fi rms, and academics. COVID-related risks remain the greatest concern, with respondents also focused on market and economic shocks emanat
493、ing from a potential faster-than-envisaged economic recovery and signifi cant ongoing fi scal and monetary stimulus, including a disruptive rise in real interest rates, a sharp correction in overvalued risky assets, and concern over rising infl ationary pressures. These frequently cited risks differ
494、 from those highlighted in the previous round of outreach in the fall, in which respondents widely cited concerns about corporate defaults, the likelihood or effi cacy of additional fi scal and monetary policy support, and U.S. political uncertainty.Vaccine challengesContacts were focused on the ris
495、k that COVID-19 variants would become resistant to currently avail-able vaccines, thereby inhibiting the economic recovery or causing another downturn. For context, risks surrounding the pandemic were featured prominently in the previous round of outreach, in which respondents focused on the potenti
496、al risk of a large resurgence in cases or delays in developing and deploying vaccines. In both rounds of outreach, many noted that asset prices across a range of mar-kets refl ect optimism around vaccine effi cacy and economic reopening, rendering them vulnerable to any virus- or vaccine-related set
497、backs.Surge in real interest rates and elevated asset price valuationsContacts suggested that a sharp rise in real interest ratescaused by either a sooner-than-expected removal of monetary policy accommodation or larger-than-anticipated U.S. Treasury issuancecould pave the way for a correction in ri
498、sky assets, including emerging market assets. Contacts observed that valuations of many assets have derived signifi cant support from low discount rates and therefore may be susceptible to a spike in yields, especially if unaccompanied by an improvement in the eco-nomic outlook.Effect of Treasury Ge
499、neral Account drawdownSeveral respondents noted that bank reserves were expected to continue to increase dramatically, potentially pressuring some short-term interest rates into negative territory and amplifying rate volatil-ity. In particular, some contacts noted the unpredictable trajectory of bal
500、ances in the Treasury General Account. Several respondents suggested that the outcome of the impending debt ceiling negotiations has contributed to this uncertainty, as a delay in an extension of the debt ceiling suspension could result in a rapid drawdown of the Treasurys account balances, thereby
501、increasing reserve levels. Some worried that a surge in reserves would increase froth in markets, heightening future risks of a disruptive correction.Escalation of U.S.China tensionsRespondents also cited various geopolitical threats that could potentially destabilize markets. Several contacts worri
502、ed about the possible escalation of tensions between the United States and China, par-ticularly surrounding Taiwan. 65Figure NotesFigure 1-1 The 2- and 10-year Treasury rates are the constant-maturity yields based on the most actively traded securities.Figure 1-2 Term premiums are estimated from a 3
503、-factor term structure model using Treasury yields and Blue Chip interest rate forecasts.Figure 1-3 Implied volatility on 10-year swap rate, 1 month ahead, derived from swaptions.Figure 1-4 Market depth is defined as the average top 3 bid and ask quote sizes for on-the-run Treasury securities.Figure
504、 1-5 The triple-B series reflects the effective yield of the ICE Bank of America Merrill Lynch (BofAML) triple-B U.S. Corporate Index (C0A4), and the high-yield series reflects the effec-tive yield of the ICE BofAML U.S. High Yield Index (H0A0).Figure 1-6 The triple-B series reflects the option-adju
505、sted spread of the ICE Bank of America Merrill Lynch (BofAML) triple-B U.S. Corporate Index (C0A4), and the high-yield series reflects the option-adjusted spread of the ICE BofAML U.S. High Yield Index (H0A0).Figure 1-7 The excess bond premium (EBP) is the residual of a regression of corporate bond
506、spreads on controls for firms expected defaults. By construction, its historical mean is zero. Positive (nega-tive) EBP values indicate that investors risk appetite is below (above) its historical mean.Figure 1-8 The data show secondary-market discounted spreads to maturity. Spreads are the con-stan
507、t spread used to equate discounted loan cash flows to the current market price. B-rated spreads begin in July1997.Figure 1-9 Aggregate forward price-to-earnings ratio of S&P 500 firms. Based on expected earnings for 12 months ahead.Figure 1-10 Aggregate forward earnings-to-price ratio of S&P 500 fir
508、ms. Based on expected earnings for 12 months ahead. Expected real Treasury yields are calculated from the 10-year consumer price index inflation forecast and the smoothed nominal yield curve estimated from off-the-run securities.66 Figure NotesFigure 1-11 Realized volatility estimated from 5-minute
509、returns using an exponentially weighted moving average with 75percent of the weight distributed over the past 20 days.Box: Vulnerabilities from Asset Valuations, Risk Appetite, and Low Interest RatesFigure A The left panel shows a histogram of a staff estimate of the equity risk premium for Janu-ary
510、1995 through February2021. The equity risk premium estimate shown is the forward earnings-to-price ratio for the S&P 500 less the 10-year real Treasury yield. Expected real Treasury yields are calculated from a 10-year consumer price index inflation forecast. The right panel shows a histogram of the
511、 excess bond premium measure of Gilchrist and Zakrajek (2012) for January1995 through February2021.Figure B Includes all domestic initial public offerings (IPOs). Special purpose acquisition companies are defined using Security Data Companys (SDC) “blank flag” check. Key identifies bars in order fro
512、m bottom to top.Figure 1-12 Series deflated using the consumer price index and seasonally adjusted by Federal Reserve Board staff. The data begin in 1997 for the equal-weighted curve and 1996 for the value-weighted curve.Figure 1-13 Data are a 12-month moving average of weighted capitalization rates
513、 in the industrial, retail, office, and multifamily sectors, based on national square footage in 2009.Figure 1-14 Banks responses are weighted by their commercial real estate loan market shares. The shaded bars with top caps indicate periods of business recession as defined by the National Bureau of
514、 Economic Research (NBER): March2001November2001, December2007June2009, and February2020present. As of the publication of this report, the NBER has not declared an end to the current recession. Survey respondents to the Senior Loan Officer Opinion Survey on Bank Lending Practices are asked about the
515、 changes over the quarter.Figure 1-15 The data for the United States start in 1997. Midwest index is a weighted average of Corn Belt and Great Plains states that comes from staff calculations. Values are given in real terms. The data extend through July2020.Figure 1-16 The data for the United States
516、 start in 1998. Midwest index is the weighted average of Corn Belt and Great Plains states. The data extend through July2020.Figure 1-18 Valuation is measured as the deviation from the long-run relationship between the price-to-rent ratio and real 10-year Treasury yield.FINaNCIaL STaBILITY rePorT: m
517、aY 2021 67Figure 1-19 The data are seasonally adjusted. The data for Phoenix start in 2002. Monthly rent values for Phoenix are interpolated from semiannual numbers. Percentiles are based on 19 metropolitan statistical areas.Figure 2-1 The shaded bars with top caps indicate periods of business reces
518、sion as defined by the National Bureau of Economic Research (NBER): January1980July1980, July1981November1982, July1990March1991, March2001November2001, December2007June2009, and February2020present. As of the publication of this report, the NBER has not declared an end to the current recession. GDP
519、 is gross domestic product.Figure 2-2 The shaded bars with top caps indicate periods of business recession as defined by the National Bureau of Economic Research (NBER): January1980July1980, July1981November1982, July1990March1991, March2001November2001, December2007June2009, and February2020present
520、. As of the publication of this report, the NBER has not declared an end to the current recession. GDP is gross domestic product.Figure 2-3 Nominal debt growth is seasonally adjusted and is translated into real terms after subtracting the growth rate of the price deflator for core personal consumpti
521、on expenditure price.Figure 2-4 Institutional leveraged loans generally exclude loan commitments held by banks.Figure 2-5 Gross leverage is an asset-weighted average of the ratio of firms book value of total debt to book value of total assets. The 75th percentile is calculated from a sample of the 2
522、,500larg-est firms by assets. The dashed sections of the lines in the first quarter of 2019 reflect the structural break in the series due to the 2019 compliance deadline for Financial Accounting Standards Board rule Accounting Standards Update 2016-02. The new accounting standard requires operating
523、 leases, previously considered off-balance-sheet activities, to be included in measures of debt and assets.Figure 2-6 The interest coverage ratio is earnings before interest and taxes divided by interest pay-ments. Firms with leverage less than 5percent and interest payments less than $500,000 are e
524、xcluded.Figure 2-7 The data begin in December1998. The default rate is calculated as the amount in default over the past 12 months divided by the total outstanding volume at the beginning of the 12-month period. The shaded bars with top caps indicate periods of business reces-sion as defined by the
525、National Bureau of Economic Research (NBER): March200168 FIGure NoTeSNovember2001, December2007September2009, and February2020present. As of the publication of this report, the NBER has not declared an end to the current recession.Figure 2-8 Volumes are for large corporations with earnings before in
526、terest, taxes, depreciation, and amortization (EBITDA) greater than $50million and exclude existing tranches of add-ons and amendments as well as restatements with no new money. Key identifies bars in order from top to bottom.Figure 2-9 Subprime are those with an Equifax Risk Score below 620; near p
527、rime are from 620 to 719; prime are greater than 719. Scores are measured contemporaneously. Student loan balances before 2004 are estimated using average growth from 2004 to 2007, by risk score. The data are converted to constant 2020 dollars using the consumer price index.Figure 2-10 Year-over-yea
528、r change in balances for the second quarter of each year among those house-holds whose balance increased over this window. Subprime are those with an Equifax Risk Score below 620; near prime are from 620 to 719; prime are greater than 719. Scores were measured one year ago. The data are converted to
529、 constant 2020 dollars using the consumer price index. Key identifies bars in order from left to right.Figure 2-11 Loss mitigation includes tradelines that have a narrative code of forbearance, natural disas-ter, payment deferral (including partial), loan modification (including federal government p
530、lans), or loans with no scheduled payment and a nonzero balance. Delinquent includes loans reported to the credit bureau at least 30 days past due. The line break represents the data transitioning from quarterly to monthly beginning January2020.Figure 2-12 Estimated share of mortgages with negative
531、equity according to CoreLogic and Zillow. For CoreLogic, the data are monthly. For Zillow, the data are quarterly and, for 2017, are avail-able only for the first and fourth quarters.Figure 2-13 Housing leverage is estimated as the ratio of the average outstanding mortgage loan balance for owner-occ
532、upied homes with a mortgage to (1) current home values using the CoreLogic national house price index and (2) model-implied house prices estimated by a staff model based on rents, interest rates, and a time trend.Figure 2-14 The data are converted to constant 2020 dollars using the consumer price in
533、dex. Student loan data begin in 2005.Figure 2-15 Subprime are those with an Equifax Risk Score below 620; near prime are from 620 to 719; prime are greater than 719. Scores are measured contemporaneously. The data are converted to constant 2020 dollars using the consumer price index.FINaNCIaL STaBIL
534、ITY rePorT: maY 2021 69Figure 2-16 Loss mitigation includes tradelines that have a narrative code of forbearance, natural disas-ter, payment deferral (including partial), loan modification (including federal government plans), or loans with no scheduled payment and a nonzero balance. Delinquent incl
535、udes loans reported to the credit bureau as at least 30 days past due. The line break represents the data transitioning from quarterly to monthly beginning January2020.Figure 2-17 Subprime are those with an Equifax Risk Score below 620; near prime are from 620 to 719; prime are greater than 719. Sco
536、res are measured contemporaneously. The data are converted to constant 2020 dollars using the consumer price index.Figure 2-18 Delinquency is at least 30 days past due, excluding severe derogatory loans. The data are four-quarter moving averages. Subprime are those with an Equifax Risk Score below 6
537、20; near prime are from 620 to 719; prime are greater than 719. Credit scores are lagged four quarters.Box: The Paycheck Protection Program Liquidity FacilityFigure B The data are not seasonally adjusted. Liquid deposits are the sum of demand deposits and other liquid deposits (other checkable depos
538、its and savings deposits).Figure C Averages of Bloomberg deposit indexes and Federal Home Loan Bank of Des Moines advance rates. PPPLF is the Paycheck Protection Program Liquidity Facility.Figure 3-1 The data are seasonally adjusted by Federal Reserve Board staff. Sample consists of banks as of 2020
539、:Q4. Before 2014:Q1, the numerator of the common equity Tier 1 ratio is Tier 1 common capital for advanced-approaches bank holding companies (BHCs) and interme-diate holding companies (IHCs) (before 2015:Q1 for non-advanced-approaches BHCs). Afterward, the numerator is common equity Tier 1 capital.
540、G-SIBs are global systemically important U.S. banks. Large nonG-SIBs are BHCs and IHCs with greater than $100billion in total assets that are not G-SIBs. The denominator is risk-weighted assets. The shaded bars with top caps indicate periods of business recession as defined by the National Bureau of
541、 Economic Research (NBER): March2001November2001, December2007June2009, and February2020present. As of the publication of this report, the NBER has not declared an end to the current recession.Figure 3-2 Bank equity is total equity capital net of preferred equity and intangible assets, and assets ar
542、e total assets. The data are seasonally adjusted by Federal Reserve Board staff. G-SIBs are U.S. global systemically important banks. Large nonG-SIBs are bank holding companies (BHCs) and intermediate holding companies with greater than $100billion in total assets that are not G-SIBs. The shaded bar
543、s with top caps indicate periods of business recession 70 FIGure NoTeSas defined by the National Bureau of Economic Research (NBER): July1990March1991, March2001November2001, December2007June2009, and February2020present. As of the publication of this report, the NBER has not declared an end to the
544、current recession.Figure 3-3 Weighted median leverage of nonfinancial firms that borrow using commercial and indus-trial loans from the 26 banks that have filed in every quarter since 2013:Q1. Leverage is measured as the ratio of the book value of total debt to the book value of total assets of the
545、borrower, as reported by the lender, and the median is weighted by committed amounts.Figure 3-4 Banks responses are weighted by their commercial and industrial loan market shares. Survey respondents to the Senior Loan Officer Opinion Survey on Bank Lending Prac-tices are asked about the changes over
546、 the quarter. Results are shown for loans to large and medium-sized firms. The shaded bars with top caps indicate periods of business recession as defined by the National Bureau of Economic Research (NBER): March2001November2001, December2007June2009, and February2020present. As of the publica-tion
547、of this report, the NBER has not declared an end to the current recession.Figure 3-5 Leverage is calculated by dividing total assets by equity.Figure 3-6 Ratio is calculated as (total assets separate account assets)/(total capital accumulated other comprehensive income) using generally accepted acco
548、unting principles. The largest 10publicly traded life and property and casualty insurers are represented.Figure 3-7 Leverage is computed as the ratio of hedge funds gross notional exposure to net asset value. Gross notional exposure includes the nominal value of all long and short positions and deri
549、vative notional exposures. Options are delta adjusted, and interest rate derivatives are reported at 10-year bond equivalents. Data are reported on a three-quarter lag.Figure 3-8 Net percentage equals the percentage of institutions that reported increased use of financial leverage over the past thre
550、e months minus the percentage of institutions that reported decreased use of financial leverage over the past three months. REIT is real estate investmenttrust.Figure 3-9 The data from the first quarter of 2021 are annualized to create the 2021 bar. CMBS is com-mercial mortgage-backed securities; CD
551、O is collateralized debt obligation; RMBS is residen-tial mortgage-backed securities; CLO is collateralized loan obligation. The “Other” category consists of other asset-backed securities (ABS) backed by credit card debt, student loans, equipment, floor plans, and miscellaneous receivables; resecuri
552、tized real estate mortgage investment conduit (Re-REMIC) RMBS; and Re-REMIC CMBS. The data are converted to constant 2021 dollars using the consumer price index. Key identifies bars in order from top to bottom.FINaNCIaL STaBILITY rePorT: maY 2021 71Figure 3-10 Committed amounts on credit lines and t
553、erm loans extended to nonbank financial firms by a balanced panel of 26 bank holding companies that have filed Form FR Y-14Q in every quarter since 2018:Q1. Nonbank financial firms are identified based on reported North American Industry Classification System (NAICS) codes. In addition to NAICS code
554、s, a name-matching algorithm is applied to identify specific entities such as real estate investment trusts (REITs), special purpose entities, collateralized loan obligations (CLOs), and asset-backed securities (ABS). REITs incorporate both mortgage (trading) REITs and equity REITs. Broker-dealers a
555、lso include commodity contracts dealers and brokerages and other securities and commodity exchanges. Other financial vehicles include closed-end investment and mutual funds. BDC is business development company.Figure 3-11 2020:Q4 over 2019:Q4 growth rates as of year-end 2020. REIT is real estate inv
556、estment trust; PE is private equity; BDC is business development company; SPE is special purpose entity; CLO is collateralized loan obligation; ABS is asset-backed securities. Key identifies bars in order from left to right.Figure 4-1 The black striped area denotes the period from 2008:Q4 to 2012:Q4
557、 when insured deposits increased because of the Transaction Account Guarantee program. “Other” consists of variable-rate demand obligations (VRDOs), federal funds, funding-agreement-backed securi-ties, private liquidity funds, offshore money market funds, and local government investment pools. Secur
558、ities lending includes only lending collateralized by cash. GDP is gross domestic product. Values for VRDOs come from Bloomberg beginning in 2019:Q1. See Jack Bao, Josh David, and Song Han (2015), “The Runnables,” FEDS Notes (Washington: Board of Governors of the Federal Reserve System, September3),
559、 https:/www.federalreserve.gov/econresdata/notes/feds-notes/2015/the-runnables-20150903.html.Figure 4-2 Liquid assets are cash plus estimates of securities that qualify as high-quality liquid assets as defined by the Liquidity Coverage Ratio requirement. Accordingly, Level 1 assets and discounts and
560、 restrictions on Level 2 assets are incorporated into the estimate. G-SIBs are U.S. global systemically important banks. Large nonG-SIBs are bank holding companies (BHCs) and intermediate holding companies with greater than $100billion in total assets that are not G-SIBs.Figure 4-3 Short-term wholes
561、ale funding is defined as the sum of large time deposits with maturity less than one year, federal funds purchased and securities sold under agreements to repur-chase, deposits in foreign offices with maturity less than one year, trading liabilities (exclud-ing revaluation losses on derivatives), an
562、d other borrowed money with maturity less than one year. The shaded bars with top caps indicate periods of business recession as defined by the National Bureau of Economic Research (NBER): March2001November2001, December2007June2009, and February2020present. As of the publication of this report, the
563、 NBER has not declared an end to the current recession.72 FIGure NoTeSFigure 4-4 The data are converted to constant 2021 dollars using the consumer price index.Figure 4-5 The data are converted to constant 2020 dollars using the consumer price index.Figure 4-6 The data are converted to constant 2021
564、 dollars using the consumer price index. Key identi-fies series in order from top to bottom.Figure 4-7 Mutual fund assets under management as of February2021 included $2,541billion in investment-grade bond funds, $292billion in high-yield bond funds, and $71billion in bank loanfunds.Figure 4-8 Secur
565、itized products include collateralized loan obligations for corporate debt, private-label commercial mortgage-backed securities for commercial real estate, and private-label residen-tial mortgage-backed securities and asset-backed securities backed by autos, credit cards, consumer loans, and student
566、 loans for other asset-backed securities. Illiquid corporate debt includes private placements, bank/syndicated loans, and high-yield bonds. Alternative invest-ments include assets filed under Schedule BA. P&C is property and casualty. Key identifies bars in order from top to bottom.Figure 4-9 The da
567、ta are converted to constant 2020 dollars using the consumer price index. FHLB is Federal Home Loan Bank. Keys identify series in order from top to bottom.Box: LIBOR Transition UpdateFigure A Key identifies bars in order from bottom to top. SOFR is Secured Overnight Financing Rate.Figure B SOFR is S
568、ecured Overnight Financing Rate.Figure C Key identifies bars in order from left to right. SOFR is Secured Overnight Financing Rate.Box: Vulnerabilities in Global U.S. Dollar Funding MarketsFigure A Excludes intragroup credit and local credit in China. Data as of 2020:Q2. Key identifies bars in order
569、 from left to right.Figure B Data as of December2020. Repurchase agreements include those reported by banks and pri-mary dealers on the Statistical Release Z.1 and Form FR 2004, respectively. Neither DTCC Solutions LLC nor any of its affiliates shall be responsible for any errors or omissions in any
570、 DTCC data included in this publication, regardless of the cause and, in no event, shall FINaNCIaL STaBILITY rePorT: maY 2021 73DTCC or any of its affiliates be liable for any direct, indirect, special, or consequential dam-ages, costs, expenses, legal fees, or losses (including lost income or lost
571、profit, trading losses and opportunity costs) in connection with this publication. CD is certificate of deposit. Key identifies shaded areas in order from top to bottom.Figure C Excludes intragroup liabilities and liabilities reported by China and Russia. Key identifies bars in order from top to bot
572、tom.Figure D BOJ is Bank of Japan, ECB is European Central Bank, BOE is Bank of England, SNB is Swiss National Bank, and “Other” includes Reserve Bank of Australia, Monetary Authority of Singapore, Norges Bank, Danmarks Nationalbank, Bank of Korea, and Bank of Mexico. Key identifies bars in order fr
573、om bottom to top.Figure E Change in net borrowing from abroad by U.S. offices is the change in gross liabilities minus gross claims from the Treasury International Capital Form B by any reporter with a foreign bank parent. Cash on branch balance sheets primarily includes reserve balances.Box: Salien
574、t Shocks to Financial Stability Cited in Market OutreachFigure Spring 2021 Responses are to the following question: “Over the next 1218 months, which shocks, if realized, do you think would have the greatest negative effect on the functioning of the U.S. financial system?” TGA is Treasury General Ac
575、count. EM is emerging market. SLR is sup-plementary leverage ratio. CRE is commercial real estate.Figure Fall 2020 Responses are to the following question: “Over the next 1218 months, which shocks, if realized, do you think would have the greatest negative effect on the functioning of the U.S. financial system?” SME is small and medium-sized enterprises. CRE is commercial real estate. CMBS is commercial mortgage-backed security.Board of Governors of the Federal Reserve Systemwww.federalreserve.gov0521