Fed Flags Elevated Asset Prices, High Debt as U.S. Financial Risks

Date : 11/15/2019 @ 7:38PM
Source : Dow Jones News

Fed Flags Elevated Asset Prices, High Debt as U.S. Financial Risks

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)

Copyright (c) 2019 Dow Jones & Company, Inc.

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