The Treasury’s Office of Financial Research flagged corporate credit, market, macroeconomic and cyber risk as elevated concerns in its annual financial stability report today. Many of these risks are being driven by the U.S. economy’s record expansion. For example, while corporate credit risk has risen from a year ago—in part consistent with the growing economy and in part due to weaker creditor protections and debt cushions—household credit risk remains low and has improved. Market risk has remained elevated over the past few years, OFR said, in large part due to high stock market and real estate valuations.
Solvency and leverage risk—associated with the core operations of banks—remain low, OFR found. “Bank capital ratios remain higher than before the 2007-09 financial crisis and exceed U.S. regulatory minimums.” Risks related to funding, liquidity and contagion remain little changed from the previous year.
However, cyber risk continues to grow in importance. “Several major cybersecurity events in the financial sector highlighted this risk, including how technology firms contribute to it,” OFR found. Idiosyncratic risks such as the transition away from Libor and the looming Brexit pose threats to financial stability as well, the agency said.