Fed Flags Elevated Asset Prices, High Debt as U.S. Financial Risks
November 15 2019 - 2:38PM
Dow Jones News
By Andrew Ackerman
WASHINGTON -- The Federal Reserve identified elevated asset
prices and historically high debt owed by U.S. businesses as top
vulnerabilities facing the U.S. financial system, according to the
latest copy of the central bank's financial stability report.
The Fed cited potential risks tied to non financial corporate
borrowing, particularly leveraged loans -- a $1.1 trillion market
that the Fed warned is growing quickly despite consistently "weak"
credit standards.
The current combination of "very low credit spreads" -- measured
as the gap between yields on U.S. Treasurys and assets such as
corporate debt -- "and high levels of indebtedness among risky
nonfinancial corporates, including through leveraged loans, merits
heightened vigilance," said Fed Gov. Lael Brainard, in a written
statement.
She added that the "low-for-long" interest rate environment and
the associated incentives to reach for yield and take on additional
debt "could increase financial vulnerabilities."
Still, Friday's report said overall risks were fairly moderate.
"The core of the financial sector appears resilient, with leverage
low and funding risk limited relative to the levels of recent
decades," the report said.
The document is the latest evolution in the Fed's efforts to
spotlight financial stability monitoring and follows years of more
intense in-house research. It comes as investors' recent recession
fears have waned on a series of economic reports that turned out
better than investors had feared.
(END) Dow Jones Newswires
November 15, 2019 14:23 ET (19:23 GMT)
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