While the financial system is more resilient today than in the years before the financial crisis, new vulnerabilities — including market risk and cyber risk — continue to pose threats to financial stability, the Office of Financial Research said in its financial stability report released today.
OFR raised concerns that potential sudden changes in asset prices could disrupt financial markets and affect economic growth, and warned of vulnerabilities resulting from excessive leverage. These market risks could be mitigated through the Federal Reserve’s gradual increase of interest rates, as well as by investors with long-term liabilities that could withstand short-term market fluctuations, OFR noted.
The financial services industry also remains vulnerable to cybersecurity threats, due to its interconnectedness and reliance on technology, OFR said. Of key concern is the potential effects of a widespread cyber attack. “In such a scenario, customers and other financial companies might sever their connections to a victimized company to avoid exposure and protect themselves from losses. They might also sever ties to similar companies for fear they are also vulnerable. Finally, they might limit their risks by pulling back from certain times of financial activities,” which could have widespread implications, the report said.