Households, companies and banks are in fairly good monetary well being and don’t seem to pose an enormous risk to the U.S. economic system, a senior Federal Reserve official mentioned Monday.
“In my view, our financial system is substantially more resilient than it was in the mid-2000s,” mentioned Fed governor Lisa Cook in a speech at Duke University.
Cook mentioned family debt similar to automotive loans, bank cards and mortgages “remains at modest levels.”
In addition, many of the debt is owned by these with “strong credit histories or considerable home equity,” she mentioned.
Business debt is close to traditionally excessive ranges, she famous, however firms seem to have the means to repay their payments as a result of strong income. So far, rising rates of interest haven’t harm them a lot.
Banks and most different monetary establishments, in the meantime, “remain sound and resilient overall,” she mentioned, and have ample monetary cushion that always exceeds regulatory necessities.
“In the banking industry, the deposit volatility that we saw earlier this year has abated,” Cook mentioned, referring to a short run on deposits after the failure of Silicon Valley Bank.
Still, Cook mentioned she and different senior Fed officers are intently monitoring the monetary system for rising indicators of stress.
She mentioned the quantity of leverage, or cash engaged in doubtlessly dangerous investments, was “elevated” amongst personal hedge funds that sometimes serve retail shoppers.
She additionally mentioned lending to industrial real-estate entities was riskier due to lax demand for workplace house in huge cities and coastal areas because the begin of the pandemic, with many individuals persevering with to earn a living from home.
If extra delinquencies passed off, she mentioned, it might put extra stress on the monetary system.
Rising long-term bond yields are one other risk, she mentioned, however she added that expectation of “higher near-term policy rates does not appear to be causing the increase.”
Yet even when the present dangers seem low, Cook mentioned, the Fed has to stay on guard. The failure of Silicon Valley Bank earlier within the yr, for instance, caught the central financial institution unexpectedly.
“We cannot — and do not expect to — foresee all potential risks. The financial system is too complex and evolves too rapidly for that to be possible,” Cook mentioned.
“What we can do is remain vigilant to emerging vulnerabilities and build resilience to a variety of potential shocks.”
Source web site: www.marketwatch.com
