Government report finds increased risks to U.S. financial stability

Multiple factors have increased overall risks to U.S. financial stability over the past year, although the banking sector “remained well capitalized and maintained risk-based capital ratios well above regulatory minimums,” the Office of Financial Research said today in its annual report to Congress.

OFR said Russia’s invasion of Ukraine in February 2022 marked the beginning of a series of events that would stress the financial system, with the report identifying six stressors: weaker economic growth; elevated volatility in the Treasury and short-term funding markets; surges in commodity pricing and hedge fund leveraging and interconnectedness; cryptoasset volatility; an increase in state-sponsored cyberattacks; and climate-related financial risks.

Banks entered a period of heightened uncertainty in 2022 as a result of rising inflation and interest rates, a greater risk of recession, and the war in Ukraine, OFR said. Still, the agency noted the Federal Reserve’s 2022 stress tests on the largest U.S. banks and other financial institutions showed they had sufficient capital to absorb more than $612 billion in losses and continue lending to households and businesses under stressful conditions. The agency also noted that no FDIC-insured institution has failed since October 2020. “The lack of bank failures and the low number of problem institutions illustrate the current health of the banking sector,” the report said.