The Federal Reserve released its Financial Stability Report. In a summary of the developments two of the four categories of vulnerabilities since the last publication in May, the Fed noted:
Leverage in the financial sector
- The banking system remained sound and resilient, as risk-based capital ratios remained close to average levels over the past decade.
- Nonetheless, high interest rates continued to depress the fair value of longer-maturity, fixed-rate assets that, for some banks, were sizable.
- Leverage remained high at the largest hedge funds.
- Broker-dealer leverage remained near historically low levels.
Funding risks
- Most domestic banks maintained high levels of liquid assets and stable funding.
- However, a subset of banks continued to face funding pressures, reflecting concerns over uninsured deposits and other factors.
- Structural vulnerabilities persisted at money market funds, some other mutual funds, and stablecoins.
- Liquidity risks for life insurers remained elevated as the share of illiquid and risky assets continued to edge up.