Fed Identifies Top Vulnerabilities Facing U.S. Financial System
Wall Street Journal | Wed, Nov 28, 2018
by Nick Timiraos and Andrew Ackerman
WASHINGTON—The Federal Reserve identified elevated asset prices, historically high debt owed by U.S. businesses and rising issuances of risky debt as top vulnerabilities facing the U.S. financial system, according to an inaugural financial stability report released Wednesday.
Officials cited potential risks tied to nonfinancial corporate borrowing, including low premiums demanded by investors in certain business debt, such as leveraged loans and high-yield corporate debt. It also flagged possible concerns in commercial real estate, in which property prices have rapidly outpaced growth in rents.
Asset valuations are “generally elevated, with investors appearing to exhibit a high tolerance for risk-taking, particularly with respect to assets linked to business debt,” the report said.