The Federal Reserve Board ("FRB") concluded that the financial sector appears resilient "with low leverage and limited funding risk" despite the volatility in the markets last year.
In its May 2019 Financial Stability Report, the FRB evaluated the financial sector based on four categories: (i) asset valuation pressures, (ii) borrowing by businesses and households, (iii) leverage within the financial sector, and (iv) funding risks. Overall, the FRB noted that little has changed since its last analysis in November 2018.
According to the report:
- some pressures in asset valuations have lessened since November 2018, but overall, pressures remain elevated;
- businesses are borrowing at historically high levels, but household borrowing is modest and the debt held by individuals with low credit score holders has remained flat;
- U.S. banks are strongly capitalized and insurance companies appear strong;
- broker-dealer leverage is below pre-crisis levels;
- hedge fund leverage has declined over the last six months; and
- funding risks are low.
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