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Financial Stability Report

May 2023
B O A R D O F G OV E R N O R S O F T H E F E D E R A L R E S E RV E S Y S T E M

The Federal Reserve System is the central
bank of the United States. It performs five key
functions to promote the effective operation
of the U.S. economy and, more generally, the
public interest.
The Federal Reserve
conducts the nation’s monetary policy to promote maximum employment
and stable prices in the U.S. economy;
promotes the stability of the financial system and seeks to minimize
and contain systemic risks through active monitoring and engagement in
the U.S. and abroad;
promotes the safety and soundness of individual financial institutions
and monitors their impact on the financial system as a whole;
fosters payment and settlement system safety and efficiency through
services to the banking industry and the U.S. government that facilitate
U.S.-dollar transactions and payments; and
promotes consumer protection and community development through
consumer-focused supervision and examination, research and analysis of
emerging consumer issues and trends, community economic development
activities, and administration of consumer laws and regulations.
To learn more about us, visit www.federalreserve.gov/aboutthefed.htm.

Contents
Purpose and Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1 Asset Valuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Box 1.1. Update on the Transition to the Secured Overnight Financing Rate. . . . . . . . . . . . . 13
Box 1.2. Financial Institutions’ Exposure to Commercial Real Estate Debt. . . . . . . . . . . . . . 16

2 Borrowing by Businesses and Households . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3 Leverage in the Financial Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Box 3.1. The Bank Stresses since March 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Box 3.2. Financial Stability Risks from Private Credit Funds Appear Limited. . . . . . . . . . . . . 45

4 Funding Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Box 4.1. The Federal Reserve’s Actions to Protect Bank Depositors and Support
the Flow of Credit to Households and Businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

5 Near-Term Risks to the Financial System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Box 5.1. Survey of Salient Risks to Financial Stability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Box 5.2. Transmission of Stress Abroad to the U.S. Financial System. . . . . . . . . . . . . . . . . 63

Appendix: Figure Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Note: This report generally reflects information that was available as of April 21, 2023.

iii

Purpose and Framework
This report presents the Federal Reserve Board’s current assessment of the stability of the U.S.
financial system. By publishing this report, the Board intends to promote public understanding by increasing transparency around, and creating accountability for, the Federal Reserve’s
views on this topic. Financial stability supports the objectives assigned to the Federal Reserve,
including full employment and stable prices, a safe and sound banking system, and an efficient
payments system.
A financial system is considered stable when
banks, other lenders, and financial markets
are able to provide households, communities,

More on the Federal
Reserve’s Monitoring Efforts

and businesses with the financing they need
to invest, grow, and participate in a well-
functioning economy—and can do so even
when hit by adverse events, or “shocks.”
Consistent with this view of financial stabil-

See the Financial Stability section of the
Federal Reserve Board’s website for more
information on how the Federal Reserve
monitors the stability of the U.S. and world
financial systems.
The website includes:

ity, the Federal Reserve Board’s monitoring
and vulnerabilities of, the financial system.

• a more detailed look at our monitoring
framework for assessing risk in each
category;

Shocks are inherently difficult to predict, while

• more data and research on related topics;

framework distinguishes between shocks to,

vulnerabilities, which are the aspects of the
financial system that would exacerbate stress,
can be monitored as they build up or recede
over time. As a result, the framework focuses
primarily on assessing vulnerabilities, with an

• information on how we coordinate, cooperate, and otherwise take action on financial
system issues; and
• public education resources describing the
importance of our efforts.

emphasis on four broad categories and how
those categories might interact to amplify
stress in the financial system.1
1. Valuation pressures arise when asset prices are high relative to economic fundamentals or
historical norms. These developments are often driven by an increased willingness of investors
to take on risk. As such, elevated valuation pressures may increase the possibility of outsized
drops in asset prices (see Section 1, Asset Valuations).

For a review of the research literature in this area, see Tobias Adrian, Daniel Covitz, and Nellie Liang (2015), “Financial
Stability Monitoring,” Annual Review of Financial Economics, vol. 7 (December), pp. 357–95.

Financial Stability Report

2. Excessive borrowing by businesses and households exposes the borrowers to distress if
their incomes decline or the assets they own fall in value. In these cases, businesses and
households with high debt burdens may need to cut back spending, affecting economic activity
and causing losses for investors (see Section 2, Borrowing by Businesses and Households).
3. Excessive leverage within the financial sector increases the risk that financial institutions will
not have the ability to absorb losses without disruptions to their normal business operations
when hit by adverse shocks. In those situations, institutions will be forced to cut back lending,
sell their assets, or even shut down. Such responses can impair credit access for households
and businesses, further weakening economic activity (see Section 3, Leverage in the
Financial Sector).
4. Funding risks expose the financial system to the possibility that investors will rapidly
withdraw their funds from a particular institution or sector, creating strains across markets
or institutions. Many financial institutions raise funds from the public with a commitment
to return their investors’ money on short notice, but those institutions then invest much of
those funds in assets that are hard to sell quickly or have a long maturity. This liquidity and
maturity transformation can create an incentive for investors to withdraw funds quickly in
adverse situations. Facing such withdrawals, financial institutions may need to sell assets
quickly at “fire sale” prices, thereby incurring losses and potentially becoming insolvent, as
well as causing additional price declines that can create stress across markets and at other
institutions (see Section 4, Funding Risks).
The Federal Reserve’s monitoring framework also tracks domestic and international developments to identify near-term risks—that is, plausible adverse developments or shocks that could
stress the U.S. financial system. The analysis of these risks focuses on assessing how such
potential shocks may spread through the U.S. financial system, given our current assessment of
vulnerabilities.
While this framework provides a systematic way to assess financial stability, some potential
risks may be novel or difficult to quantify and therefore are not captured by the current approach.
Given these complications, we rely on ongoing research by the Federal Reserve staff, academics, and other experts to improve our measurement of existing vulnerabilities and to keep pace
with changes in the financial system that could create new forms of vulnerabilities or add to
existing ones.

Federal Reserve actions to promote the resilience of the
financial system
The assessment of financial vulnerabilities informs Federal Reserve actions to promote the resilience of the financial system. The Federal Reserve works with other domestic agencies directly

Purpose and Framework

and through the Financial Stability Oversight Council (FSOC) to monitor risks to financial stability
and to undertake supervisory and regulatory efforts to mitigate the risks and consequences of
financial instability.
Actions taken by the Federal Reserve to promote the resilience of the financial system include
its supervision and regulation of financial institutions. In the aftermath of the 2007–09 financial
crisis, these actions have included requirements for more and higher-quality capital, an innovative stress-testing regime, and new liquidity regulations applied to the largest banks in the United
States. In addition, the Federal Reserve’s assessment of financial vulnerabilities informs decisions regarding the countercyclical capital buffer (CCyB). The CCyB is designed to increase the
resilience of large banking organizations when there is an elevated risk of above-normal losses
and to promote a more sustainable supply of credit over the economic cycle.

Overview
This report reviews conditions affecting the stability of the U.S. financial system by analyzing
vulnerabilities related to valuation pressures, borrowing by businesses and households,
financial-sector leverage, and funding risks. It also highlights several near-term risks that, if
realized, could interact with these vulnerabilities.
Since the November 2022 Financial Stability Report was released, Silicon Valley Bank (SVB),
Signature Bank, and First Republic Bank failed following substantial deposit outflows prompted
by concerns over poor management of interest rate risk and liquidity risk. In March, to prevent
broader spillovers in the banking system, the Federal Reserve, together with the Federal Deposit

Overview of financial system vulnerabilities

Asset valuations

• Yields on Treasury
securities declined
across all maturities in
March amid heightened
financial market
volatility.
• Risk premiums in equity
and corporate bond
markets continued to be
near the middle of their
historical distributions.
• Real estate valuations
remained very elevated
even though activity
weakened. Both house
prices and commercial
property prices have
shown recent declines.

Borrowing by businesses
and households

Leverage in the
financial sector

• The ratio of total private
debt to gross domestic
product (GDP) edged
down but was still at a
moderate level.

• Poor management of
interest rate risk and
liquidity risk contributed
to three sizable bank
failures since March
2023. Concerns over
broader spillovers in
the banking sector led
to official interventions
by the Federal Reserve,
the Federal Deposit
Insurance Corporation,
and the U.S. Department
of Treasury.

• The business
debt-to-GDP ratio
remained at a high level,
but debt issuance by
the riskiest companies
slowed markedly.
Interest coverage ratios
for publicly traded firms
declined a bit from
historically high levels.
• Household debt
remained at modest
levels relative to GDP
and was concentrated
among prime-rated
borrowers.

• Broker-dealer leverage
rested near historically
low levels. The limited
willingness and ability of
dealers to intermediate
during times of distress
can amplify volatility.
• Hedge fund leverage
remained elevated.
Bank lending to nonbank
financial institutions
stabilized at high levels.

Funding risks

• Some banks
experienced notable
funding strains following
the failures of Silicon
Valley Bank and
Signature Bank. The
actions by the official
sector reduced funding
strains in the banking
system.
• Structural vulnerabilities
persisted at money
market funds, other
cash-management
vehicles, and
stablecoins. Certain
types of mutual funds
continued to be
susceptible to large
redemptions.
• Liquidity risks for life
insurers remained
elevated as the share of
illiquid and risky assets
continued to edge up.

Financial Stability Report

Insurance Corporation (FDIC) and the Department of the Treasury, took decisive actions to protect
bank depositors and support the continued flow of credit to households and businesses. Owing
to these actions and the resilience of the banking and financial sector, financial markets normalized, and deposit flows have stabilized since March, although some banks that experienced large
deposit outflows continued to experience stress. These developments may weigh on credit conditions going forward.
A summary of the developments in the four broad categories of vulnerabilities since the last report
is as follows:
1. Asset valuations. Yields on Treasury securities declined in March amid heightened financial
market volatility. Measures of equity prices relative to expected earnings were volatile over
the period but remained above their historical median, while risk premiums in corporate bond
markets stayed near the middle of their historical distributions. Valuations in residential real
estate remained elevated despite weakening activity. Similarly, commercial real estate (CRE)
valuations remained near historically high levels, even as price declines have been widespread
across CRE market segments (see Section 1, Asset Valuations).
2. Borrowing by businesses and households. On balance, vulnerabilities arising from borrowing
by nonfinancial businesses and households were little changed since the November report
and remained at moderate levels. Business debt remained elevated relative to gross domestic
product (GDP), and measures of leverage remained in the upper range of their historical
distributions, although there are indications that business debt growth began to slow toward
the end of last year. Measures of the ability of firms to service their debt stayed high.
Household debt remained at modest levels relative to GDP, and most of that debt is owed by
households with strong credit histories or considerable home equity (see Section 2, Borrowing
by Businesses and Households).
3. Leverage in the financial sector. Concerns over heavy reliance on uninsured deposits, declining
fair values of long-duration fixed-rate assets associated with higher interest rates, and poor risk
management led market participants to reassess the strength of some banks (discussed in the
box “The Bank Stresses since March 2023”). Overall, the banking sector remained resilient,
with substantial loss-absorbing capacity. Broker-dealer leverage remained historically low.
Leverage at life insurance companies edged up but stayed below its pandemic peak. Hedge
fund leverage remained elevated, especially for large hedge funds (see Section 3, Leverage in
the Financial Sector).
4. Funding risks. Substantial withdrawals of uninsured deposits contributed to the failures of
SVB, Signature Bank, and First Republic Bank and led to increased funding strains for some
other banks, primarily those that relied heavily on uninsured deposits and had substantial
interest rate risk exposure. Policy interventions by the Federal Reserve and other agencies
helped mitigate these strains and limit the potential for further stress (discussed in the box

Overview

“The Federal Reserve’s Actions to Protect Bank Depositors and Support the Flow of Credit
to Households and Businesses”). Overall, domestic banks have ample liquidity and limited
reliance on short-term wholesale funding. Structural vulnerabilities remained in short-term
funding markets. Prime and tax-exempt money market funds (MMFs), as well as other cashinvestment vehicles and stablecoins, remained vulnerable to runs. Certain types of bond and
loan funds experienced outflows and remained susceptible to large redemptions, as they hold
securities that can become illiquid during periods of stress. Life insurers continued to have
elevated liquidity risks, as the share of risky and illiquid assets remained high (see Section 4,
Funding Risks).
This report also discusses potential near-term risks based in part on the most frequently cited
risks to U.S. financial stability as gathered from outreach to a wide range of researchers, academics, and market contacts conducted from February to April (discussed in the box “Survey of Salient
Risks to Financial Stability”). Frequently cited topics in this survey included persistent inflation and
tighter monetary policy, banking-sector stress, commercial and residential real estate, and geopolitical tensions. The box “Transmission of Stress Abroad to the U.S. Financial System” describes
how financial stresses abroad can spill over to the U.S. financial system.
Finally, the report contains additional boxes that analyze salient topics related to financial
stability: “Update on the Transition to the Secured Overnight Financing Rate,” “Financial
Institutions’ Exposure to Commercial Real Estate Debt,” and “Financial Stability Risks from
Private Credit Funds Appear Limited.”

Survey of salient risks to the U.S. financial system
Survey respondents cited several risks to the U.S. financial system. For more information, see the box “Survey of Salient
Risks to Financial Stability.”

Persistent inflation;
monetary tightening

May
2023

November
2022

56%

of contacts
surveyed

62%

of contacts
surveyed

Banking-sector
stress

56%

of contacts
surveyed

12%

of contacts
surveyed

U.S.–China
tensions

56%

of contacts
surveyed

42%

of contacts
surveyed

Commercial and
residential real estate

52%

of contacts
surveyed

12%

of contacts
surveyed

Russia–Ukraine
war

52%

of contacts
surveyed

62%

of contacts
surveyed

Asset Valuations

Asset valuation pressures remained moderate despite notable
fluctuations in financial markets
Since the November report, significant strains in the banking sector, along with increased uncertainty about the economic outlook and the path of monetary policy, led to notable fluctuations in
financial asset prices. Yields on Treasury securities declined across all maturities. Broad equity
indexes were volatile but have increased, on net, since the previous report. Corporate credit
spreads were moderately lower, on net, and near their historical averages.
Liquidity in short-term Treasury markets experienced notable strains associated with the high volatility and elevated uncertainty that roiled financial markets in the middle of March, while equity and
corporate bond markets also saw liquidity deteriorate during that period. Despite these worsened
liquidity conditions, market functioning proved largely resilient.
As has been the case for some time now, valuation pressures remained elevated in property
markets. In residential real estate, valuations remained near all-time highs despite weakening
activity and falling prices in recent months. Valuations in the commercial segment also remained
near historical highs even though price declines have been widespread. In addition, fundamentals
have weakened, particularly for the office segment. Farmland prices were also historically elevated
relative to rents, reflecting higher crop prices and limited inventories of land.
Table 1.1 shows the sizes of the asset markets discussed in this section. The largest asset markets are those for residential real estate, equities, Treasury securities, and CRE.

Treasury yields declined sharply following the Silicon Valley Bank
and Signature Bank failures, particularly for shorter-maturity
securities
On net, yields on Treasury securities moved lower since the November report (figure 1.1). However, the monthly averages plotted in the figure obscure some important daily movements during
the month of March. Throughout February and into early March, the yields on Treasury securities
moved notably higher following stronger-than-expected economic data but abruptly reversed course
following the failures of SVB and Signature Bank. These failures raised uncertainty about the economic outlook and future path of interest rates, prompting investors to reallocate portfolios toward
safer assets. The market for two-year Treasury securities was most acutely affected, with the twoyear yield falling by more than 60 basis points on March 13, the single largest daily decline since
1987. Yields on longer-term Treasury securities also declined in March, but by a smaller amount.

Financial Stability Report

Table 1.1. Size of selected asset markets
Outstanding
(billions of dollars)

Growth,
2021:Q4–2022:Q4
(percent)

Average annual growth,
1997–2022:Q4
(percent)

Residential real estate

55,670

10.4

6.4

Equities

46,819

−21.0

8.7

Treasury securities

23,845

5.7

8.1

Commercial real estate

23,796

−1.4

6.8

Investment-grade corporate bonds

7,116

4.8

8.1

Farmland

3,188

10.1

5.7

High-yield and unrated corporate bonds

1,677

−6.6

6.6

Leveraged loans*

1,424

6.2

13.9

Commercial real estate**

−1.9

3.1

Residential real estate***

2.5

Item

Price growth (real)

Note: The data extend through 2022:Q4. Growth rates are measured from Q4 of the year immediately preceding the period through Q4 of the
final year of the period. Equities, real estate, and farmland are at nominal market value; bonds and loans are at nominal book value.
* The amount outstanding shows institutional leveraged loans and generally excludes loan commitments held by banks. For example, lines of
credit are generally excluded from this measure. Average annual growth of leveraged loans is from 2000 to 2022:Q4, as this market was fairly
small before then.
** One-year growth of commercial real estate prices is from December 2021 to December 2022, and average annual growth is from 1998:Q4
to 2022:Q4. Both growth rates are calculated from equal-weighted nominal prices deflated using the consumer price index (CPI).
*** One-year growth of residential real estate prices is from December 2021 to December 2022, and average annual growth is from 1997:Q4
to 2022:Q4. Nominal prices are deflated using the CPI.
Source: For leveraged loans, PitchBook Data, Leveraged Commentary & Data; for corporate bonds, Mergent, Inc., Fixed Income Securities
Database; for farmland, Department of Agriculture; for residential real estate price growth, CoreLogic, Inc.; for commercial real estate price
growth, CoStar Group, Inc., CoStar Commercial Repeat Sale Indices; for all other items, Federal Reserve Board, Statistical Release Z.1, “Financial
Accounts of the United States.”

Figure 1.1. Nominal Treasury yields fell in March and April
Percent, annual rate
Monthly

2-year
10-year

Apr.

1998

2003

2008

2013

Source: Federal Reserve Board, Statistical Release H.15, “Selected Interest Rates.”

2018

2023

8
7
6
5
4
3
2
1
0

Asset Valuations

A model-based estimate of the nominal Treasury term premium—a measure of the compensation
that investors require to hold longer-term Treasury securities rather than shorter-term ones—
remained low relative to its long-run history (figure 1.2). Treasury market volumes, particularly in
the on-the-run segment, increased dramatically in March as well. Interest rate volatility implied by
options remained well above its historical median (figure 1.3).

Figure 1.3. Interest rate volatility remained
above its long-term median

Figure 1.2. An estimate of the nominal
Treasury term premium remained low
Percentage points

2.5

Monthly

2.0

Basis points
Monthly

250
200

1.5
1.0

150

0.5
0.0
Apr.

1998

2003

2008

2013

2018

2023

Apr.
Median

−0.5

−1.0
−1.5

Source: Department of the Treasury; Wolters Kluwer,
Blue Chip Financial Forecasts; Federal Reserve Bank
of New York; Federal Reserve Board staff estimates.

2005

2008

2011

100

2014

2017

2020

2023

Source: For data through July 13, 2022, Barclays
Trading and IHS Markit; for data from July 14, 2022,
onward, ICAP, Swaptions and Interest Rate Caps and
Floors Data.

Equity market valuation pressures increased modestly
Equity prices in the banking sector fell following the SVB and Signature Bank failures to levels well
below those that prevailed at the time of the November report. Broad equity indexes experienced
considerable volatility but, smoothing through
the ups and downs, were up a bit from the
previous report. All told, equity market valuation pressures increased modestly since

Figure 1.4. The price-to-earnings ratio of
S&P 500 firms continued to be above its
historical median

the November report as equity price growth
outpaced growth in earnings forecasts, push-

Ratio
Monthly

ing the forward price-to-earnings ratio higher

to a level notably above its historical average
(figure 1.4).

Mar.
Median

investors require for holding stocks relative
to risk-free bonds—declined since the
November report to somewhat below its

21
18
15
12

An estimate of the expected equity premium—
one measure of the additional return that

9
1991 1995 1999 2003 2007 2011 2015 2019 2023

Source: Federal Reserve Board staff calculations
using Refinitiv, Institutional Brokers’ Estimate System.

Financial Stability Report

historical median (figure 1.5).2 Equity market volatility remained elevated during the first quarter of
2023, reflecting strains in the banking system and continued uncertainty around monetary policy
and future economic conditions, but fell to near its historical median in April (figure 1.6).

Figure 1.5. An estimate of the equity premium fell below its historical median
Percentage points
Monthly

10
8
6

Median
Mar.

4
2
0

1991

1995

1999

2003

2007

2011

2015

2019

2023

−2

Source: Federal Reserve Board staff calculations using Refinitiv (formerly Thomson Reuters), Institutional Brokers’
Estimate System; Department of the Treasury; Federal Reserve Bank of Philadelphia, Survey of Professional
Forecasters.

Figure 1.6. Volatility in equity markets remained elevated
Percent
Monthly

Option-implied volatility
Realized volatility

80
70
60
50
40
30
20

Apr.

1998

2003

2008

2013

2018

2023

10
0

Source: Refinitiv, DataScope Tick History; Federal Reserve Board staff estimates.

Market liquidity worsened in key markets amid heightened
uncertainty
Market liquidity refers to the ease and cost of buying and selling an asset. Low liquidity can
amplify the volatility of asset prices and result in larger price moves in response to shocks. In
extreme cases, low liquidity can threaten market functioning, leading to a situation in which participants are unable to trade without incurring a significant cost.

This estimate is constructed based on expected corporate earnings for 12 months ahead. Alternative measures of the
equity premium that incorporate longer-term earnings forecasts suggest more elevated equity valuation pressures.

Asset Valuations

Liquidity conditions in the market for Treasury securities are particularly important due to the key
role those securities play in the financial system. Throughout much of last year and into early
2023, various measures of liquidity—the average size of bid and ask orders posted on electronic
platforms at the best prices (“market depth”) and bid-ask spreads—indicated that liquidity in the
Treasury market was lower and less resilient than is typical.3 Market liquidity conditions came
under even greater strain as a result of distress in the banking sector. Market depth in on-the-run
Treasury securities, normally the most liquid segment, fell substantially in mid-March (figures 1.7
and 1.8), and bid-ask spreads rose marketwide, with particularly notable increases for shortermaturity notes. Further, the intraday volatility of bid-ask spreads on short-maturity securities rose
to levels last seen in March 2020.4 These additional liquidity strains in March 2023 appeared to

Figure 1.7. Treasury market depth remained below historical norms

35
30

Millions of dollars

5-day moving average

5-year (right scale)
10-year (right scale)
30-year (left scale)

300
250
200

20
15

Apr.
20

150
100
50

5
0

350

Jan.

Apr.

July
2019

Oct.

Jan.

Apr.

July
2020

Oct.

Jan.

Apr.

July
2021

Oct.

Jan.

Apr.

July
2022

Oct.

Jan. Apr.
2023

Source: Inter Dealer Broker Community.

Figure 1.8. On-the-run market depth worsened in March then recovered
60

Millions of dollars

5-day moving average

300

200

100

20
2-year OTR market depth (right scale)
10-year OTR market depth (left scale)

Apr.
19

0
Oct.
Jan.
2019

Apr.

July
2020

Oct.

Jan.

Apr.

July
2021

Oct.

Jan.

Apr.

July
2022

Oct.

Jan.
Apr.
2023

Source: BrokerTec; Federal Reserve Board staff calculations.

The bid-ask spread is the difference between the best “bid” quote to buy an asset and the best “ask” quote to sell that
asset; smaller bid-ask spreads indicate lower trading costs and, hence, more liquid markets.

For further discussions about the liquidity risks posed by volatile bid-ask spreads, see Dobrislav Dobrev and Andrew
Meldrum (2020), “What Do Quoted Spreads Tell Us about Machine Trading at Times of Market Stress? Evidence from
Treasury and FX Markets during the COVID-19-Related Market Turmoil in March 2020,” FEDS Notes (Washington: Board
of Governors of the Federal Reserve System, September 25), https://doi.org/10.17016/2380-7172.2748.

Financial Stability Report

be a consequence of the elevated interest rate volatility that followed the heightened uncertainty
around the future economic outlook and path of monetary policy. Despite these strains, Treasury
markets continued to function throughout the episode without severe dislocations or reports of
investors being unable to transact. By early April, the most acute strains had dissipated, and
liquidity conditions in Treasury markets returned to the levels that prevailed for much of the
past year.
Liquidity deteriorated in a range of other markets in March as well. Bid-ask spreads on corporate bonds widened, particularly for investment-grade financial bonds, although these spreads
remained well below pandemic levels. In equity markets, depth in the S&P 500 futures markets
declined before stabilizing at below-average levels (figure 1.9). Equity and corporate bond market
functioning remained largely smooth despite the rising transaction costs associated with lower
liquidity, and liquidity conditions normalized by early April.

Figure 1.9. A measure of liquidity in equity markets fell sharply in March
Market depth (number of contracts)
5-day moving average

300

200

100
Apr.
18

Oct.
Jan.
2019

Apr.

July
2020

Oct.

Jan.

Apr.

July
2021

Oct.

Jan.

Apr.

July
2022

Oct.

Jan.
Apr.
2023

Source: Refinitiv, DataScope Tick History; Federal Reserve Board staff calculations.

Corporate debt market valuations remained near their historical
averages
Yields on corporate bonds fell since the November report and by more than yields on
comparable-maturity Treasury securities (figure 1.10). Consequently, corporate bond spreads,
measured as the difference in yields between corporate bonds and comparable-maturity
Treasury securities, were moderately lower since November and near their historical average levels
(figure 1.11). The excess bond premium—a measure that captures the gap between corporate
bond spreads and expected credit losses—has remained near its historical average (figure 1.12).
Valuation pressures in leveraged loan markets were little changed from the November report.
The average spread on leveraged loans above their benchmark rates in the secondary market
declined moderately and was near its average over the past decade (figure 1.13). The excess loan

Asset Valuations

Figure 1.10. Corporate bond yields fell to near their historical averages
Percent
Monthly
Triple-B
High-yield

Apr.

1998

2003

2008

2013

2018

2023

24
22
20
18
16
14
12
10
8
6
4
2
0

Source: ICE Data Indices, LLC, used with permission.

Figure 1.11. Spreads to similar-maturity
Treasury securities edged down
12
11
10
9
8
7
6
5
4
3
2
1
0

Percentage points

Figure 1.12. The excess bond premium stayed
near its historical average

Percentage points

Monthly
Triple-B
(left scale)
High-yield
(right scale)
Apr.

1998

2003

2008

2013

2018

2023

24
22
20
18
16
14
12
10
8
6
4
2
0

Source: ICE Data Indices, LLC, used with permission.

Percentage points
Monthly

4
3
2
1

Mar.

1998

2003

2008

2013

2018

2023

0
−1
−2

Source: Federal Reserve Board staff calculations
based on Lehman Brothers Fixed Income Database
(Warga); Intercontinental Exchange, Inc., ICE Data
Services; Center for Research in Security Prices,
CRSP/Compustat Merged Database, Wharton
Research Data Services; S&P Global, Compustat.

Figure 1.13. Spreads in the leveraged loan market fell modestly
Percentage points
B
BB

30
25
20
15

Apr.
14

10
5

1998

2003

2008

Source: PitchBook Data, Leveraged Commentary & Data.

2013

2018

2023

Financial Stability Report

premium, a measure of the risk premium in leveraged loans, increased notably during March and
remained at an elevated level, indicating subdued investor risk appetite. The trailing 12-month
loan default rate increased moderately but remained somewhat below its historical median, while
the year-ahead expected default rate rose moderately, suggesting a mild deterioration of the credit
quality of leveraged loan borrowers and a worsening outlook.
The transition away from LIBOR as the benchmark rate in the leveraged loan market was nearly
complete, with almost all new leveraged loan activity being conducted using the Secured Overnight Financing Rate (SOFR) (see the box “Update on the Transition to the Secured Overnight
Financing Rate”).

Commercial real estate prices declined, but valuations
remained high
Valuation pressures in the CRE sector have eased slightly since the November report but
remained at high levels. Aggregate CRE prices measured in inflation-adjusted terms have declined
(figure 1.14). These prices are based on repeat sales and may mask growing weaknesses, as
more distressed properties are generally less likely to trade. Capitalization rates at the time of
property purchase, which measure the annual income of commercial properties relative to their
prices, have turned up modestly from their historically low levels (figure 1.15). While price declines
were widespread across all property types, fundamentals in the office sector were particularly
weak for offices in central business districts, with vacancy rates increasing further and rent growth
declining since the November report. In the January 2023 Senior Loan Officer Opinion Survey
(SLOOS), banks reported weaker demand and tighter standards for all CRE loan categories over

Figure 1.15. Income of commercial properties
relative to prices turned up but remained near
historically low levels

Figure 1.14. Commercial real estate prices,
adjusted for inflation, declined
Jan. 2001 = 100
Monthly
Feb.

200
180

Percent
Monthly

160
140
120
100
80

1998

2003

2008

2013

2018

2023

Mar.

Source: CoStar Group, Inc., CoStar Commercial
Repeat Sale Indices; consumer price index, Bureau of
Labor Statistics via Haver Analytics.

2003

2007

2011

2015

2019

2023

10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0

Source: Real Capital Analytics; Andrew C. Florance,
Norm G. Miller, Ruijue Peng, and Jay Spivey (2010),
“Slicing, Dicing, and Scoping the Size of the U.S.
Commercial Real Estate Market,” Journal of Real
Estate Portfolio Management, vol. 16 (May–August),
pp. 101–18.

Asset Valuations

Box 1.1. Update on the Transition to the Secured Overnight
Financing Rate
The banks contributing to the U .S . dollar (USD) LIBOR rates are due to end their submissions after
June 30, 2023, marking the end of LIBOR as a representative benchmark . The transitions from the
euro, Swiss franc, Japanese yen, and sterling LIBOR rates, which ended last year, went smoothly, but
the transition from USD LIBOR poses particular risks because of the very large exposures to these
rates both domestically and abroad . The Alternative Reference Rates Committee (ARRC) has estimated
that USD LIBOR is used in $74 trillion of financial contracts maturing after June 2023, and it is also
used extensively in nonfinancial contracts .

New activity
Following guidance issued by the Federal Reserve, FDIC, and Office of the Comptroller of the Currency
warning that most new use of USD LIBOR in contracts after 2021 would create safety and soundness
risks, almost all new transactions have moved to SOFR . Adjustable-rate retail mortgage originations
and almost all ﬂoating-rate debt issuance are now based on SOFR, and SOFR represents more than
90 percent of risk traded in new derivatives activity . Although SOFR just began publication in 2018,
there are now more than $60 trillion of SOFR derivatives and $4 trillion in SOFR loans and debt
instruments outstanding .
While most new derivatives, ﬂoating-rate debt, and consumer products reference SOFR or averages
of SOFR directly, the bulk of new lending activity has moved to term SOFR rates . The term SOFR
rates are forward-looking benchmarks with 1-, 3-, 6- , and 12-month maturities similar to LIBOR .
They are derivatives products based on futures markets for SOFR rather than drawing directly from
transactions in the Treasury repurchase agreement (repo) market that overnight SOFR is based on
and, thus, depend on the continued high level of transaction depth in overnight SOFR futures and other
derivatives markets in order to be robustly produced .
Recently, CME Group, the administrator of the term SOFR rates, has moved to explicitly incorporate
limits on the use of its rates that mirror the ARRC’s recommendations in its licensing agreements,
which should help ensure that use of these rates remains in line with financial stability considerations .
The FSOC and Financial Stability Board have both recognized the use of these types of term rates
in legacy LIBOR cash products and some business loans but have warned against more widespread
use . In line with these recommendations, the ARRC has recognized the use of term SOFR rates as a
fallback in legacy cash products and certain new issuances of cash products, particularly business
loans, but has recommended that use of term SOFR rates in derivatives and most other cash markets
remain limited .

Legacy products
In December, the Board issued its final rule implementing the Adjustable Interest Rate (LIBOR) Act
(LIBOR Act) . The LIBOR Act directed the Board to select spread-adjusted benchmark replacements
based on SOFR for LIBOR contracts that mature after June 30, 2023, and do not have clear and
practicable fallback language . While the International Swaps and Derivatives Association and the
ARRC have worked over the past several years to develop and encourage the use of fallback language
that adequately addresses the impending cessation of LIBOR, many older contracts only have
fallbacks appropriate for a temporary outage of LIBOR rather than its permanent cessation, and some
contracts do not have any fallbacks at all . This is a particular problem for legacy ﬂoating-rate debt,
securitizations, and consumer products, all of which are difficult to amend . The Board’s final rule will
replace (or allow for the replacement of) LIBOR in these products with spread-adjusted versions of CME
Group’s term SOFR rates or averages of SOFR following June 30, 2023 .
(continued)

Financial Stability Report

Box 1.1—continued
While the banks submitting to the remaining USD LIBOR rate panel will withdraw as of June 30, 2023,
the U .K . Financial Conduct Authority (FCA) has announced that it will require the administrator of
LIBOR to continue publishing 1-, 3-, and 6-month USD LIBOR on a “synthetic” basis for an additional
15 months, through September 2024 . The FCA has stated that these synthetic LIBOR rates will be
nonrepresentative, meaning that, in the FCA’s official judgement, they will not reﬂect the underlying
market that LIBOR was intended to represent . The FCA has also stated that it intends the publication
of these synthetic rates to help the transition of legacy contracts not subject to U .S . law and therefore
not covered by the LIBOR Act . The synthetic version of USD LIBOR will be published as LIBOR but
would match the spread-adjusted term SOFR rates that the Board has selected under the LIBOR Act
as the benchmark replacement rate applicable to most nonconsumer cash products . Most contracts
under U .S . law will not be affected by the publication of these synthetic rates either because they
have more recent fallback language designed to move away from LIBOR once it is declared to be
nonrepresentative or because they are covered by the LIBOR Act . Nonetheless, there are some
contracts issued under U .S . law that would fall back to a non-LIBOR rate (and so are not covered by
the LIBOR Act) that may reference the synthetic LIBOR rates, primarily older loan agreements that
otherwise would fall back to the prime rate (which is much higher than LIBOR) if LIBOR is unavailable .
LCH and CME Group are implementing plans to convert outstanding LIBOR derivatives that they clear
to SOFR over April and May 2023 . The Board has encouraged banks to similarly remediate their LIBOR
loans ahead of June 30, 2023, where feasible, citing operational risks that could arise from attempting
to convert a large book of LIBOR loans in a short period of time following June 2023 . While firms have
set deadlines to complete the remediation of their outstanding LIBOR loans ahead of June 30, 2023,
there are risks that they will fall behind schedule . Progress in remediating syndicated leveraged loans,
which can require consent or nonobjection from a majority of the lenders—in many cases including
nonbank financial institutions (NBFIs)—has been particularly slow, although there have been recent
signs that the pace of remediation may be increasing . Many firms had planned to use refinancing as
an opportunity to move these loans off of LIBOR, but refinancing activity has declined over the past
year . Securities cannot easily be remediated ahead of the June 30, 2023, deadline, but the ARRC and
FSOC have encouraged issuers and other relevant parties to use the Depository Trust and Clearing
Corporation’s LIBOR Replacement Index Communication Tool in order to inform investors about the rate
changes that will take effect after June 2023 .

Asset Valuations

the fourth quarter of 2022 (figure 1.16). The box “Financial Institutions’ Exposure to Commercial
Real Estate Debt” offers more detail on where losses might arise in the event of a significant
correction in CRE prices.

Figure 1.16. Banks reported tightening lending standards in commercial real estate loans

Easing

Tightening

Net percentage of banks reporting
Quarterly

1997

2002

2007

2012

2017

2022

100
80
60
40
20
0
−20
−40
−60
−80
−100

Source: Federal Reserve Board, Senior Loan Officer Opinion Survey on Bank Lending Practices; Federal Reserve Board
staff calculations.

Farmland valuations remained at high levels
Farmland prices were near the peak values of their historical distribution, remaining unchanged
since the November report (figure 1.17). Similarly, the ratios of farmland prices to rents remained
historically high (figure 1.18). These high valuations were driven by strong agricultural commodity
prices, limited inventory of farmland, and significant increases in cropland revenues that had more
than offset higher operating costs.

Figure 1.17. Farmland prices reached near
historical highs
2022 dollars per acre
Annual

Figure 1.18. Farmland prices grew faster
than rents
8000
7000

Midwest index
U.S.

Ratio
Annual

35
Midwest index
U.S.

6000

5000

4000

Median

20
Median

3000

2000
1972

1982

1992

2002

2012

2022

1000

Source: Department of Agriculture; Federal Reserve
Bank of Minneapolis staff calculations.

1972

1982

1992

2002

2012

2022

Source: Department of Agriculture; Federal Reserve
Bank of Minneapolis staff calculations.

Financial Stability Report

Box 1.2. Financial Institutions’ Exposure to Commercial Real
Estate Debt
The shift toward telework in many industries has dramatically reduced demand for office space, which
could lead to a correction in the values of office buildings and downtown retail properties that largely
depend on office workers . Moreover, the rise in interest rates over the past year increases the risk
that CRE mortgage borrowers will not be able to refinance their loans when the loans reach the end of
their term . With CRE valuations remaining elevated (see Section 1, Asset Valuations), the magnitude
of a correction in property values could be sizable and therefore could lead to credit losses by holders
of CRE debt .1 This discussion presents data on the exposures of various financial institutions to CRE
mortgage debt, focusing on nonfarm nonresidential properties (a diverse category that includes office
buildings, hotels, retail stores, and warehouses) and the construction and land development loans
associated with these property types .2
Table A shows the dollar volume of nonfarm nonresidential CRE loans outstanding held by different
categories of financial institutions . Banks hold about 60 percent of these CRE loans, of which more
than two-thirds are held by banks other than Category I–IV banks .3 Insurance companies and holders
of commercial mortgage-backed securities (CMBS) also have significant exposures to CRE mortgages .
Insurance companies hold higher-rated tranches of CMBS and shares of equity real estate investment
trusts (REITs) that own CRE properties, so the exposure of insurance companies to CRE is larger than
their exposure through whole loans shown in the table . Institutions that hold lower-rated tranches of
CMBS include private equity funds, mortgage REITs, and finance companies . Mortgages specifically
backed by office or downtown retail property tend to be about one-third of each set of institutions’ CRE
holdings, on average . That said, individual institutions can specialize in certain types of loans, so the
portfolio composition of any given institution may differ from the average shown for its category . Loans
for construction or land development of nonfarm nonresidential properties (included in column 1 but
not shown separately) are about 15 percent of aggregate bank nonfarm nonresidential CRE holdings .
Losses on CRE loans will depend on their leverage because owners of buildings with substantial equity
cushions are less likely to default . Also, loans with high loan-to-value (LTV) ratios are typically harder
to refinance or modify . As of the fourth quarter of 2022, current LTVs (that is, ratios that incorporate
recent estimates of building value rather than building value at loan origination) of mortgages backed
by office and downtown retail properties were in the range of 50 to 60 percent, on average, for the
loan-level data that are available (Category I–IV banks, insurance companies, and CMBS pools) . Current
LTVs were in a similar range for the broader category of nonfarm nonresidential CRE mortgages . LTVs
were low for many mortgages because for most property types—retail being a notable exception—values rose materially in the years leading up to the pandemic . Even so, some CRE mortgages do have
fairly high LTVs, in particular at some Category I–IV banks . Two important caveats are worth emphasizing . First, information on the LTVs of CRE mortgages held by banks other than Category I–IV banks is
limited . Second, CRE property valuations are elevated, and current LTVs could rise considerably if CRE
property valuations were to fall .
(continued)
1

For example, Gupta, Mittal, and Van Nieuwerburgh (2022) estimate that the shift to remote work will lead to a drop in commercial
office property values of nearly 40 percent; see Arpit Gupta, Vrinda Mittal, and Stijn Van Nieuwerburgh (2022), “Work from Home
and the Office Real Estate Apocalypse,” NBER Working Paper Series 30526 (Cambridge, Mass .: National Bureau of Economic
Research, September), https://www .nber .org/papers/w30526 .

Specifically, this analysis does not include multifamily mortgages (for example, mortgages backed by apartment buildings)
because the fundamentals of that sector are substantially different . In addition, although financial institutions are also exposed
to a potential CRE market correction if they hold CRE properties directly, that channel is outside the scope of this discussion .

Category I banks are U .S . G-SIBs . Category II–IV banks tend to have assets greater than $100 billion and are defined according to the tailoring rule of 2019 as listed on page 2 of a visualization of the rule on the Board’s website at https://www .
federalreserve .gov/aboutthefed/boardmeetings/files/tailoring-rule-visual-20191010 .pdf . Other banks include remaining depository institutions .

Asset Valuations

Box 1.2—continued
The ability of an institution to withstand CRE-related credit losses also depends critically on the fraction of loans to this sector relative to the institution’s overall portfolio . Nonfarm nonresidential CRE
mortgages tend to be a small share of total assets held by banks overall, but about one-fifth of total
assets of banks other than Category I–IV banks . Importantly, some banks may have more concentrated
exposures to CRE mortgages than average and therefore may experience higher-than-average losses
should CRE conditions weaken . In response to concerns about CRE, the Federal Reserve has increased
monitoring of the performance of CRE loans and expanded examination procedures for banks with significant CRE concentration risk .

Table A. Commercial real estate holdings in 2022:Q4: Nonfarm nonresidential, including office and
downtown retail, by investor type
Investor type
Total

Holdings of nonfarm
nonresidential CRE
(trillions of dollars)

Percent of total CRE
loans outstanding

Holdings of ofﬁce and Total assets held by
downtown retail CRE each investor type
(trillions of dollars)
(trillions of dollars)

3.57

Banks

2.17

.72

28.5

Category I banks (U.S. G-SIBs)

.28

.10

14.3

Category II–IV banks

.34

.11

6.8

Other

1.55

.51

7.4

Life insurers

.47

.17

5.4

Holders of non-agency CMBS

.53

.17

Other nonbank
.40
11
Note: Total nonfarm nonresidential commercial real estate (CRE) is all commercial mortgage assets as reported in Table L.220: Commercial
Mortgages in the “Financial Accounts of the United States.” For banks, the data are private depository institutions’ CRE loans. For life insurers, the
data are life insurers’ CRE loans. Life insurer total assets do not consider reinsurance. For holders of non-agency commercial mortgage-backed
securities (CMBS), the data include real estate investment trust (REIT) holdings of CMBS. For other nonbank holders of CRE mortgages, the
data are computed as total commercial mortgages less banks, life insurers, and holders of CMBS. This category includes REITs, government,
and nonﬁnancial businesses, among other sectors. Category I U.S. G-SIBs are global systemically important bank holding companies. Totals
for banks are constructed as the sum of loans secured by nonfarm nonresidential properties and a fraction (0.847) of non–one- to four-family
construction lending. This fraction reﬂects the estimated fraction of non–one- to four-family construction lending that is not multifamily. A list of
banks in each category is available on the Board’s website at https://www.federalreserve.gov/aboutthefed/boardmeetings/ﬁles/tailoring-rulevisual-20191010.pdf. The ofﬁce loan holdings for the groups adjust the groups’ CRE holdings by staff estimates for the ofﬁce loan holdings as
a share of nonfarm nonresidential CRE loans in the group. Other banks’ CRE lending is constructed by subtracting Category I U.S. G-SIBs’ and
Category II–IV banks’ CRE lending from the bank total. Total assets for these banks are calculated using data from the FR Y-9C and Call Reports.
The ofﬁce and downtown retail share for other banks is assumed to be consistent with the average loan-balance weighted share of Category II–IV
banks. Holder percentages may not sum due to rounding.
Source: Federal Reserve Board staff calculations based on the following: Federal Reserve Board, Form FR Y-14Q (Schedule H.2), Capital
Assessments and Stress Testing; Morningstar, Inc., Morningstar CMBS data; National Association of Insurance Commissioners, Schedule B; CBRE
Econometric Advisors; Federal Reserve Board, Statistical Release Z.1, “Financial Accounts of the United States”; Federal Reserve Board, Form
FR Y-9C, Consolidated Financial Statements for Holding Companies; S&P Global, Capital IQ Pro; and Federal Financial Institutions Examination
Council, Call Report Forms FFIEC 031, FFIEC 041, and FFIEC 051, Consolidated Reports of Condition and Income (Call Reports).

Financial Stability Report

House prices declined in recent months, but valuations
remained high
Rising borrowing costs have contributed to a moderation of prices in housing markets, as yearover-year house price increases have decelerated (figure 1.19), and some data suggested small
declines in recent months. Nevertheless, valuation pressures in residential real estate remain
elevated. A model of house price valuation based on prices relative to owners’ equivalent rent and
the real 10-year Treasury yield remained near historically high levels despite having fallen somewhat in the first quarter. Another measure based on market rents also pointed to stretched valuations, although to a lesser extent (figure 1.20). Similarly, while price-to-rent ratios have declined
across a wide distribution of geographic areas since the November report, the median price-to-rent
ratio remained above its previous peak in the mid-2000s (figure 1.21). While housing fundamentals have weakened, foreclosures and distressed sales, which could amplify downward pressure
on prices, remained limited because mortgage underwriting standards did not loosen substantially

Figure 1.19. House price growth decelerated sharply
12-month percent change
Monthly

Zillow
CoreLogic
Case-Shiller

2003

2008

2013

2018

2023

25
20
15
10
5
0
−5
−10
−15
−20
−25

Source: CoreLogic, Inc., Real Estate Data; Zillow, Inc., Real Estate Data; S&P Case-Shiller Home Price Indices.

Figure 1.20. Model-based measures of house price valuations remained historically high
Percent
Quarterly

40
30

Owners’ equivalent rent
Market-based rents

20
10
0
−10
−20

1983

1988

1993

1998

2003

2008

2013

2018

Source: For house prices, Zillow, Inc., Real Estate Data; for rent data, Bureau of Labor Statistics.

2023

−30

Asset Valuations

as they did in the early 2000s. In addition, homeowner equity cushions remained considerable,
and the share of second-home buyers also remained near historical lows.

Figure 1.21. House price-to-rent ratios remained elevated across geographic areas
Jan. 2010 = 100
Monthly
Median
Middle 80 percent of markets

220
180
140

Mar.

1998

2003

2008

2013

2018

Source: For house prices, Zillow, Inc., Real Estate Data; for rent data, Bureau of Labor Statistics.

2023

100
60

Borrowing by Businesses and
Households

Vulnerabilities from business and household debt remained moderate
On balance, vulnerabilities arising from borrowing by businesses and households were little
changed since the November report and remained at moderate levels. For businesses, both the
business debt-to-GDP ratio and gross leverage remained at high levels, although they were significantly lower than the record highs reached at the onset of the pandemic. Nevertheless, median
interest coverage ratios remained high, supported by strong earnings growth. Recent data show
that earnings growth has started to slow for the largest firms. In the event of an economic downturn, sizable declines in corporate earnings could weaken the debt-servicing capacity of firms.
Indicators of household vulnerabilities, including the household debt-to-GDP ratio and the aggregate household debt service ratio, remained at modest levels. However, if household nominal
income fails to keep pace with higher prices, tighter budgets may make it more difficult to service
existing debt. In addition, an economic downturn or a correction in real estate prices remain risks
for household credit performance.
Table 2.1 shows the amounts outstanding and recent historical growth rates of forms of debt
owed by nonfinancial businesses and households as of the fourth quarter of 2022. Total outstanding private credit was split about evenly between businesses and households, with businesses
owing $19.9 trillion and households owing $19.0 trillion. The combined total debt of nonfinancial businesses and households grew more slowly than nominal GDP since the November report,
leading to a modest decline in the debt-to-GDP ratio, which moved back closer to the level that had
prevailed for much of the decade before the pandemic (figure 2.1). The decline in the overall ratio
was driven by a larger decline in household debt-to-GDP ratio compared to the business debt-toGDP ratio (figure 2.2).

Key indicators point to little change in business debt vulnerabilities,
which remained moderate relative to historical levels
Overall vulnerabilities from nonfinancial business debt remained moderate since the November
report, as measures of leverage remained elevated and robust earnings boosted interest coverage
ratios. There are some indications that business debt growth has slowed. Nonfinancial real business debt adjusted for inflation declined slightly (figure 2.3). In addition, net issuance of risky debt
dropped sharply as institutional leveraged loan issuance turned negative for the first time since
2020 amid rapidly increasing borrowing costs and weaker investor demand driven by elevated
uncertainty and market volatility (figure 2.4). Further, the net issuance of high-yield and unrated

Financial Stability Report

Table 2.1. Outstanding amounts of nonfinancial business and household credit
Outstanding
(billions of dollars)

Growth,
2021:Q4–2022:Q4
(percent)

Average annual growth,
1997–2022:Q4
(percent)

Total private nonfinancial credit

38,832

6.0

5.6

Total nonfinancial business credit

19,877

5.9

12,765

5.5

5.3

Bonds and commercial paper

7,545

5.5

Bank lending

2,171

20.9

4.2

Leveraged loans*

1,388

11.3

14.1

Noncorporate business credit

7,111

6.6

7.0

Commercial real estate credit

3,069

8.1

6.3

Total household credit

18,955

6.2

5.4

Mortgages

12,515

7.2

5.6

Consumer credit

4,781

7.9

5.2

Student loans

1,757

1.4

8.0

Auto loans

1,412

7.5

5.1

Credit cards

1,203

15.5

3.5

26,145

7.2

4.5

Item

Corporate business credit

Nominal GDP

Note: The data extend through 2022:Q4. Outstanding amounts are in nominal terms. Growth rates are measured from Q4 of the year immediately preceding the period through Q4 of the final year of the period. The table reports the main components of corporate business credit, total
household credit, and consumer credit. Other, smaller components are not reported. The commercial real estate (CRE) row shows CRE debt
owed by nonfinancial corporate and noncorporate businesses as defined in Table L.220: Commercial Mortgages in the “Financial Accounts of
the United States.” Total household credit includes debt owed by other entities, such as nonprofit organizations. GDP is gross domestic product.
* Leveraged loans included in this table are an estimate of the leveraged loans that are made to nonfinancial businesses only and do not
include the small amount of leveraged loans outstanding for financial businesses. The amount outstanding shows institutional leveraged loans
and generally excludes loan commitments held by banks. For example, lines of credit are generally excluded from this measure. The average
annual growth rate shown for leveraged loans is computed from 2000 to 2022:Q4, as this market was fairly small before 2000.
Source: For leveraged loans, PitchBook Data, Leveraged Commentary & Data; for GDP, Bureau of Economic Analysis, national income and product accounts; for all other items, Federal Reserve Board, Statistical Release Z.1, “Financial Accounts of the United States.”

Figure 2.1. The total debt of households and businesses relative to GDP declined further
Ratio
Quarterly

2.0
1.7

1.4
1.1

1980

1986

1992

1998

2004

2010

2016

2022

0.8

Source: Federal Reserve Board staff calculations based on Bureau of Economic Analysis, national income and product
accounts, and Federal Reserve Board, Statistical Release Z.1, “Financial Accounts of the United States.”

Borrowing by Businesses and Households

Figure 2.2. Both business and household debt-to-GDP ratios edged down
1.1

Ratio

Ratio
Quarterly

1.0

0.9

0.8

0.8
0.7

0.6
0.4
1980

1986

1992

1998

2004

2010

0.7
0.6

Nonﬁnancial business
(right scale)
Household (left scale)

0.5
0.3

1.0

0.5

2016

2022

0.4

bonds remained negative. Gross leverage—

Figure 2.3. Business debt adjusted for inflation
declined modestly

the ratio of debt to assets—of all publicly
traded nonfinancial firms remained high by

Percent change, annual rate

historical standards, roughly unchanged from

Quarterly

the values seen in 2021 and lower than its

historical peak in mid-2020 (figure 2.5). Net

leverage—the ratio of debt less cash to total

assets—continued to edge up among all large

publicly traded businesses and remained high
relative to its history.

1997

2002

2007

2012

2017

2022

0
−5
−10

Source: Federal Reserve Board, Statistical
Release Z.1, “Financial Accounts of the United
States.”

The interest coverage ratio for all publicly
traded firms, measured by the median ratio of
earnings to interest expenses, retreated from
its recent high but nonetheless remained in

Figure 2.4. Net issuance of risky debt remained subdued
Billions of dollars
Quarterly

Institutional leveraged loans
High-yield and unrated bonds

2005

2008

2011

2014

2017

2020

Source: Mergent, Inc. Fixed Income Securities Database; PitchBook Data, Leveraged Commentary & Data.

2023

120
100
80
60
40
20
0
−20
−40
−60

Financial Stability Report

the upper range of its historical distribution,

Figure 2.5. Gross leverage of large businesses
remained at high levels
Percent
Quarterly

75th percentile
All ﬁrms

suggesting that large businesses were able
to service their debt (figure 2.6). The absence

55
50
45

2001 2004 2007 2010 2013 2016 2019 2022

of significant deterioration in the level of the
median interest coverage ratio despite rising
interest rates over the past year has reflected

the combination of solid earnings and the

sizable share of fixed-rate bonds in corpo-

rations’ debt liabilities.5 A higher share of

fixed-rate liabilities mutes the pass-through
of increased interest rates into debt-servic-

Source: Federal Reserve Board staff calculations
based on S&P Global, Compustat.

ing costs. That said, earnings have shown
some signs of weakness. In the future, a
sharper-than-expected slowing or a decline in

Figure 2.6. Firms’ ability to service their debt,
as measured by the interest coverage ratio,
was strong
Ratio
Quarterly

economic activity could make debt obligations
more challenging to meet for some busi6

nesses. For riskier firms with a noninvestment-grade rating, interest coverage
ratios remained below their historical

Median for all ﬁrms
Median for all non-investment-grade ﬁrms

median levels.6

The credit performance of outstanding

corporate bonds remained strong since the
2001 2004 2007 2010 2013 2016 2019 2022
Source: Federal Reserve Board staff calculations
based on S&P Global, Compustat.

November report. The volume of downgrades
and defaults remained low, but market expectations of defaults over the next year rose as
investor perceptions of the economic outlook
worsened. More than half of investment-grade

bonds outstanding continued to be rated in the lowest category of the investment-grade range (triple-B). If a large share of these bonds were downgraded, debt cost would increase when the bonds
need to roll over, putting pressure on firms’ balance sheets.
Meanwhile, the available data for smaller middle-market firms that are privately held—which have
less access to capital markets and primarily borrow from banks, private credit and equity funds,
and sophisticated investors—also indicated that leverage declined over the second half of 2022.
The interest coverage ratio for the median firm in this category remained high during the same
5

Only about 5 percent of outstanding bonds rated triple-B and 1 percent of outstanding high-yield bonds are due within
a year.

While these firms represent a large share of the number of publicly traded firms (85 percent), their debt constitutes only
35 percent of the total debt in the sector.

Borrowing by Businesses and Households

period and was above the level at publicly traded firms. However, an important caveat is that the
data on smaller middle-market firms are not as comprehensive as those on large firms.
The credit quality of leveraged loans remained
solid through the second half of 2022 but

Figure 2.7. Default rates on leveraged loans
inched up from historically low levels

has shown some signs of deterioration. The

Percent

volume of credit rating downgrades exceeded

Monthly

14
12

the volume of upgrades over this period, and

default rates inched up for four consecutive

quarters, albeit from historically low levels

6
4

(figure 2.7). The share of newly issued loans

Mar.

to large corporations with debt multiples—
defined as the ratio of debt to earnings before
interest, taxes, depreciation, and amortization—greater than 5 remained at a historically

2
0

1999

2003

2007

2011

2015

2019

2023

−2

Source: PitchBook Data, Leveraged Commentary
& Data.

high level in 2022, indicating stable tolerance
for additional leverage among investors in this
market (figure 2.8). Rising interest rates, in combination with a potential slowdown in earnings
growth posed by the less favorable economic outlook, could put pressure on the credit quality of
outstanding leveraged loans, as their floating debt service costs would increase.

Figure 2.8. The majority of new leveraged loans last year have debt multiples greater than 5
Percent
Debt multiples ≥ 6x
Debt multiples 5x–5.99x
Debt multiples 4x–4.99x
Debt multiples < 4x

100
80
60
40
20

2001

2004

2007

2010

2013

2016

2019

2022

Source: Mergent, Inc., Fixed Income Securities Database; PitchBook Data, Leveraged Commentary & Data.

Delinquencies at small businesses edged up, but credit quality
remained solid
Delinquency rates for small businesses edged up from relatively low levels, but overall credit quality remained solid. Borrowing costs increased in 2022 and now stand a touch higher than prevailing pre-pandemic rates. In addition, the share of small businesses that borrow regularly increased

Financial Stability Report

according to the National Federation of Independent Business Small Business Economic Trends
Survey but remained low relative to historical levels; the share of firms with unmet financing needs
also remained quite low.

Vulnerabilities from household debt remained moderate
Elevated levels of liquid assets and still-large
home equity cushions helped households

Figure 2.9. Real household debt edged up
Trillions of dollars (real)
Quarterly
Prime
Near prime
Subprime

maintain strong balance sheets through the
14

second half of last year. That said, some

borrowers remained financially stretched and

10
Q4

2001 2004 2007 2010 2013 2016 2019 2022

8
6

more vulnerable to future shocks.

Outstanding household debt adjusted for

inflation edged up in the second half of 2022

(figure 2.9). While the increase was broad

Source: Federal Reserve Bank of New York Consumer
Credit Panel/Equifax; consumer price index, Bureau of
Labor Statistics via Haver Analytics.

based across the credit score distribution,
most of the growth was driven by borrowers
with prime credit scores, who accounted
for more than half of the total number of
borrowers.

Credit risk of outstanding household debt remained generally low
The ratio of total required household debt payments to total disposable income (the household
debt service ratio) increased slightly since the November report. This increase means that some
borrowers allocated a larger portion of their income to pay the interest and principal on their loans,
potentially weakening their ability to withstand shocks to their income. Nonetheless, the ratio
remained at modest levels after reaching a historical low in the first quarter of 2021 amid extensive fiscal stimulus, credit card paydowns, and low interest rates. With the increase in interest
rates over the past year only partially passed through to household interest expenses, the household debt service ratio could increase further. With the exception of credit card debt, only a small
share of household debt is subject to floating rates, which should limit the effect of increased
interest rates in the near term. For most other types of household debt, rising interest rates
increase borrowing costs only for new loan originations.
Mortgage debt, which accounts for roughly two-thirds of total household debt, grew a bit more
slowly than GDP in 2022:Q4. Estimates of housing leverage when measuring home values as a
function of rents and other market fundamentals remained flat and significantly lower than their
peak levels before 2008 (figure 2.10, black line). The overall mortgage delinquency rate ticked up

Borrowing by Businesses and Households

Figure 2.10. A model-based estimate of
housing leverage was flat

Figure 2.11. Mortgage delinquency rates
remained at historically low levels

1999:Q1 = 100
Quarterly

Percent of mortgages

180

Relative to model-implied values
Relative to market value

Quarterly

160

140

120
4

100

2001 2004 2007 2010 2013 2016 2019 2022

Source: Federal Reserve Bank of New York Consumer
Credit Panel/Equifax; Zillow, Inc., Real Estate Data;
Bureau of Labor Statistics via Haver Analytics.

from a historically low level (figure 2.11), and
the share of mortgage balances in a loss-

Delinquent
Delinquent/loss mitigation

2
0

2001 2004 2007 2010 2013 2016 2019 2022
Source: Federal Reserve Bank of New York Consumer
Credit Panel/Equifax.

Figure 2.12. Very few homeowners had
negative equity in their homes

mitigation program remained low. A very low

Percent of mortgages

share of borrowers had negative home equity

Monthly

30
25

in the last quarter of 2022 (figure 2.12).

New mortgage extensions, which have skewed

heavily toward prime borrowers in recent

years, declined in the last quarter of 2022

Dec.

against the backdrop of higher mortgage rates
and slower activity in the housing market
(figure 2.13). New mortgage loans with low

2012

2014

2016

2018

2020

2022

5
0

Source: CoreLogic, Inc., Real Estate Data.

Figure 2.13. New mortgage extensions to nonprime borrowers have been subdued
Billions of dollars (real)
Annual

Subprime
Near prime
Prime

1600
1200
800
400

2001

2004

2007

2010

2013

2016

2019

2022

Source: Federal Reserve Bank of New York Consumer Credit Panel/Equifax; consumer price index, Bureau of Labor
Statistics via Haver Analytics.

Financial Stability Report

down payments were seen in about half of the newly originated purchase loans in 2022. Such highly
leveraged originations, which also tended to have lower average credit scores, remained vulnerable
to house price declines, as their equity could quickly become negative. With the share of adjustable-rate mortgages in new home purchases at 10 percent in recent months, the interest rate risk
for mortgage borrowers remained limited. That said, the early payment delinquency rate—the share
of balances becoming delinquent within one year of mortgage origination—continued to rise.

Figure 2.14. Real consumer credit edged up in
the second half of 2022
Billions of dollars (real)
Quarterly
Student loans
Auto loans
Credit cards

2001 2004 2007 2010 2013 2016 2019 2022

The remaining one-third of household debt
was consumer credit, which consisted primarily of student loans, auto loans, and credit

2000
1800
1600
1400
1200
1000
800
600
400
200

Source: Federal Reserve Bank of New York Consumer
Credit Panel/Equifax; consumer price index, Bureau of
Labor Statistics via Haver Analytics.

card debt (as shown in table 2.1). On net,
inflation-adjusted consumer credit growth
increased a bit since the November report
(figure 2.14), at a slightly higher pace than
GDP. Real auto loan balances ticked up that
period, mostly driven by prime borrowers,
but balances for near-prime and subprime
borrowers also increased to a lesser extent
(figure 2.15). The share of auto loan balances
in loss mitigation continued to decline and
stood at a low level at the end of 2022, but
those in delinquent status have increased

in the past several quarters, returning to a level that is in line with its history over the previous
decade (figure 2.16).

Figure 2.15. Real auto loans outstanding
ticked up
Billions of dollars (real)
Quarterly

Prime
Near prime
Subprime

Figure 2.16. Auto loan delinquencies moved up
in 2022 but still remained at modest levels
800
700

600
500
400

Percent
Quarterly

10
8

Delinquent
Delinquent/loss mitigation

6
Q4

300

200
2001 2004 2007 2010 2013 2016 2019 2022

100

Source: Federal Reserve Bank of New York Consumer
Credit Panel/Equifax; consumer price index, Bureau of
Labor Statistics via Haver Analytics.

2001 2004 2007 2010 2013 2016 2019 2022
Source: Federal Reserve Bank of New York Consumer
Credit Panel/Equifax.

Borrowing by Businesses and Households

Aggregate real credit card balances continued to increase in the second half of last year
(figure 2.17). Rates paid on these balances increased in line with short-term rates over the past
year. Delinquency rates have also increased over the same period (figure 2.18). The outsized
nature of the increase in subprime delinquency rates in large part is because of a compositional
change in the pool of borrowers arising from fiscal support and forbearance programs implemented during the pandemic.7
After rising rapidly for more than a decade, real student loan debt declined with the onset of the
pandemic. More recently, student loan balances have ticked up.

Figure 2.17. Real credit card balances have
increased in 2022, partially reversing earlier
declines

Figure 2.18. Credit card delinquencies
increased but remained at low levels
Percent

Billions of dollars (real)
Quarterly

550

Quarterly

8
6

450
Q4

350

250
Prime
Near prime
Subprime

2001 2004 2007 2010 2013 2016 2019 2022

150
50

Source: Federal Reserve Bank of New York Consumer
Credit Panel/Equifax; consumer price index, Bureau of
Labor Statistics via Haver Analytics.

2001 2004 2007 2010 2013 2016 2019 2022

Source: Federal Reserve Bank of New York Consumer
Credit Panel/Equifax.

As a result of these programs, many borrowers from the subprime group migrated to the near-prime or prime groups.
The remaining subprime borrowers had lower credit scores, on the whole, than the pool of subprime borrowers before
the pandemic. See Sarena Goodman, Geng Li, Alvaro Mezza, and Lucas Nathe (2021), “Developments in the Credit
Score Distribution over 2020,” FEDS Notes (Washington: Board of Governors of the Federal Reserve System, April 30),
https://www.federalreserve.gov/econres/notes/feds-notes/developments-in-the-credit-score-distribution-over-2020-
20210430.html.

Leverage in the Financial Sector

Poor risk management undermined some banks, while the broader
banking system remained sound and resilient; meanwhile, leverage
at some types of nonbank financial institutions appeared elevated
Vulnerabilities related to overall financial-sector leverage appeared to remain moderate. In
March 2023, poor interest rate and liquidity risk management contributed to runs on SVB and
Signature Bank and stresses at some additional banks, subsequently leading to the failure of First
Republic Bank on May 1. Actions taken by the official sector reassured depositors, and the broad
banking system remained sound and resilient. For the banking system as a whole, aggregate bank
capital levels were ample. At potentially vulnerable banks, examiners have increased the frequency
and depth of monitoring, with examination activities directed to assessing the current valuation of
investment securities, deposit trends, the diversity of funding sources, and the adequacy of contingency funding plans.
Broker-dealer leverage remained low, but vulnerabilities persisted regarding their willingness and
ability to intermediate in fixed-income markets during periods of stress. Some types of nonbank
financial firms continued to operate with high leverage.
Table 3.1 shows the sizes and growth rates of the types of financial institutions discussed in this
section.

Concerns over interest rate risk and declines in the fair value of
some assets led to stress in the banking sector and raised concerns
about spillovers
Rising interest rates affect banks in several ways. Higher interest rates on floating-rate and newly
acquired fixed-rate assets lead to higher interest income for banks. The costs of bank funding
also increase, but generally much more slowly than market rates. As a result, the net interest
margins of most banks typically increase in a rising rate environment as the rates they receive on
their assets outpace their funding costs.8 Over the past year, interest rates increased considerably as policy rates rose from near-zero levels. The overall banking sector has remained profitable
and resilient as rates have risen, with net interest margins reflecting higher interest income on
floating-rate loans coupled with interest expense on many deposits staying well below market
rates (figure 3.1).

Net interest margin measures a bank’s yield on its interest-bearing assets after netting out interest expense.

Financial Stability Report

Table 3.1. Size of selected sectors of the financial system, by types of institutions and vehicles
Total assets
(billions of dollars)

Item

Growth,
2021:Q4–2022:Q4
(percent)

Average annual growth,
1997–2022:Q4
(percent)

Banks and credit unions

25,594

-.1

6.1

Mutual funds

17,333

-22.0

8.9

Insurance companies

11,867

-8.5

5.5

Life

8,844

-10.3

5.6

Property and casualty

3,023

-2.5

5.5

Hedge funds*

9,067

-5.7

7.9

Broker-dealers**

4,927

-.7

4.8

13,161

9.1

5.6

11,698

9.5

6.1

1,464

5.8

3.6

Outstanding
(billions of dollars)
Securitization
Agency
Non-agency***

Note: The data extend through 2022:Q4 unless otherwise noted. Outstanding amounts are in nominal terms. Growth rates are measured from
Q4 of the year immediately preceding the period through Q4 of the final year of the period. Life insurance companies’ assets include both general
and separate account assets.
* Hedge fund data start in 2012:Q4 and are updated through 2022:Q3. Growth rates for the hedge fund data are measured from Q3 of the year
immediately preceding the period through Q3 of the final year of the period.
** Broker-dealer assets are calculated as unnetted values.
*** Non-agency securitization excludes securitized credit held on balance sheets of banks and finance companies.
Source: Federal Reserve Board, Statistical Release Z.1, “Financial Accounts of the United States”; Federal Reserve Board, “Enhanced Financial
Accounts of the United States.”

Figure 3.1. Banks’ average interest rate on interest-earning assets and average expense rate on
liabilities increased
Percent
Quarterly

Average interest rate on interest-earning assets
Average interest expense rate on liabilities

6
5
4

3
2
1
0

2014

2016

2018

2020

2022

Source: Federal Reserve Board, Form FR Y-9C, Consolidated Financial Statements for Holding Companies.

Leverage in the Financial Sector

In the aggregate, more than 45 percent of bank assets reprice or mature within a year, reducing
exposure to legacy fixed-rate assets in the overall banking system. Nonetheless, higher interest
rates substantially affected the value of
banks’ existing holdings of fixed-rate assets in
2022. In 2020 and 2021, banks added nearly
$2.3 trillion in securities to their balance

Figure 3.2. The fair values of banks’ securities
portfolios declined in 2022 as interest
rates rose

sheets, primarily fixed-rate U.S. Treasury securities and agency-guaranteed mortgage-backed

Billions of dollars
Quarterly

securities, most of which were placed in their

available-for-sale (AFS) and held-to-maturity
(HTM) securities portfolios. By the end of
Available-for-sale securities
Held-to-maturity securities

2022, banks had declines in fair value of
$277 billion in AFS portfolios and $341 billion
in HTM portfolios (figure 3.2).9 Additionally,
banks have other long-duration fixed-rate
assets, such as fixed-rate residential mortgages, whose interest income did not increase
with rising interest rates.

2017

2018

2019

2020

2021

2022

300
200
100
0
−100
−200
−300
−400
−500
−600
−700
−800

Source: Federal Financial Institutions Examination
Council, Call Report Form FFIEC 031, Consolidated
Reports of Condition and Income (Call Report);
Federal Reserve Board, Form FR Y-9C, Consolidated
Financial Statements for Holding Companies.

As discussed in the box “The Bank Stresses since March 2023,” SVB did not effectively manage
the interest rate risk associated with its securities holdings or develop effective interest rate risk
measurement tools, models, and metrics. SVB also had a concentrated business model and failed
to manage the liquidity risks of liabilities that were largely composed of uninsured deposits from
venture capital firms and the tech sector.
In early March 2023, depositors became increasingly concerned about the health of SVB, and
the bank experienced substantial deposit outflows. On March 10, SVB failed. The equity prices
of some banks declined sharply, and some banks saw sizable outflows from uninsured depositors. On March 12, Signature Bank failed. Concerns over stresses in the banking sector led the
U.S. Department of the Treasury, the Federal Reserve, and the FDIC to intervene on March 12 to
assure depositors of the safety of their deposits (see the box “The Federal Reserve’s Actions to
Protect Bank Depositors and Support the Flow of Credit to Households and Businesses”). Deposit
outflows slowed considerably thereafter. Nonetheless, First Republic Bank continued to experience
continued stress, leading to its failure and subsequent acquisition on May 1 by JPMorgan Chase
Bank with government support. The Federal Reserve will continue to closely monitor conditions
in the U.S. banking system, and it is prepared to use all its tools for institutions of any size, as
needed, to support the safety and soundness of the U.S. banking system.

In addition, there was a decline in fair value of $28 billion related to securities transferred from AFS to HTM accounts.

Financial Stability Report

Box 3.1. The Bank Stresses since March 2023
The banking system came under severe stress late in the week of March 6, 2023 . On Wednesday,
March 8, Silvergate Bank, an institution supervised by the Federal Reserve with $11 billion in assets at
the end of 2022, announced its intention to voluntarily wind down its operations and to fully repay all
deposits .1
On that Wednesday afternoon, SVB, an institution supervised by the Federal Reserve with $209 billion
in assets at the end of 2022, announced it had sold $21 billion from its AFS securities portfolio at an
after-tax loss of $1 .8 billion, was planning to increase nondeposit borrowing from $15 billion to $30 billion, and was commencing a public offering to raise capital by $2 .25 billion .2 The bank also noted that
it had been in dialogue with a rating agency that was considering a negative rating action, with the
possibility that another agency would follow suit . Later that day, the bank received a one-notch rating
downgrade, and its rating outlook was changed from stable to negative . These announcements led to a
loss of confidence in the bank, as reﬂected in the sharp decline in SVB’s stock market price, illustrated
in figure A, and unprecedented deposit withdrawals from customers, totaling $42 billion in a single
business day on Thursday, March 9 . As additional deposit withdrawal requests accumulated, the bank
informed regulators on the morning of Friday, March 10, that $100 billion in deposit withdrawals were
scheduled or expected for that day .3 The bank was unable to pay those obligations, and, on the morning of Friday, March 10, the Department of Financial Protection and Innovation of the State of California
declared SVB insolvent, took possession of the bank, and appointed the FDIC as receiver .
It appeared that contagion from SVB’s failure could be far-reaching and cause damage to the broader
banking system . The prospect of uninsured depositors not being able to access their funds appeared
to raise concerns about the possibility of destabilizing runs at other U .S . commercial banks . This
(continued)
Figure A. Bank stock prices and stock indexes
Feb. 1, 2023 = 100
Business days

Mar. 8
Apr.
21

S&P 500 index
KBW Nasdaq Regional
Banking Index
KBW Nasdaq Bank Index

Feb. 1

Feb. 8

Feb. 15

Mar. 2

Mar. 9 Mar. 16
2023

100
80
60

Silicon Valley Bank
Signature Bank
Credit Suisse
First Republic

Feb. 23

120

40
20
Mar. 23

Mar. 30

Apr. 6

Apr. 14

Apr. 21

Source: Center for Research in Security Prices, CRSP/Compustat Merged Database, Wharton Research Data
Services; Federal Reserve Bank of St . Louis, Federal Reserve Economic Data .

See Silvergate Bank (2023), “Silvergate Capital Corporation Announces Intent to Wind Down Operations and Voluntarily Liquidate
Silvergate Bank,” press release, March 8, https://ir .silvergate .com/news/news-details/2023/Silvergate-Capital-CorporationAnnounces-Intent-to-Wind-Down-Operations-and-Voluntarily-Liquidate-Silvergate-Bank/default .aspx . The announcement followed
deposit outflows in the fourth quarter of 2022 that reduced deposit balances by more than 50 percent .

See Silicon Valley Bank (2023), “Strategic Actions/Q1’23 Mid-Quarter Update” (Santa Clara, Calif .: SVB, March 8), available at
https://ir .svb .com/events-and-presentations/default .aspx .

The $42 billion in deposit withdrawals on March 9 comes from the order taking possession of property and business from the
Department of Financial Protection and Innovation of the State of California available on the department’s website at https://dfpi .
ca .gov/wp-content/uploads/sites/337/2023/03/DFPI-Orders-Silicon-Valley-Bank-03102023 .pdf?emrc=bedc09 . The $100 billion
in scheduled or expected deposit withdrawals for March 10 comes from Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank available on the Federal Reserve’s website at https://www .federalreserve .gov/publications/files/svbreview-20230428 .pdf .

Leverage in the Financial Sector

Box 3.1—continued
concern over broader contagion led to sizable declines in bank stocks, as reﬂected by the declines in
the KBW bank indexes (as shown in figure A) . On March 10, Signature Bank, an institution supervised
by the FDIC with $110 billion in assets at the end of 2022, continued experiencing stock price declines
and suffered a run, with depositors withdrawing 20 percent of deposit balances .4 Signature Bank was
closed on Sunday, March 12, by the New York State Department of Financial Services, and the FDIC
was named receiver .5 The speed and magnitude of the runs on uninsured deposits at SVB and Signature Bank generated broader concerns about the resilience of banks with a large concentration of
uninsured deposits and significant declines in the fair value of fixed-rate assets in a rising rate environment . The bank runs at SVB and Signature Bank contributed to a further deterioration of confidence in
banks, amplifying the initial bank stresses . Other banks also saw notable deposit outﬂows, threatening
households’ and businesses’ ability to access accounts they routinely use to make payments . In contrast, the largest banks saw significant deposit inﬂows . On Sunday, March 12, the Federal Reserve,
together with the FDIC and the U .S . Department of the Treasury, announced decisive actions to protect
households and businesses (see the box “The Federal Reserve’s Actions to Protect Bank Depositors
and Support the Flow of Credit to Households and Businesses”) .
The runs on SVB and Signature Bank were of unprecedented speed compared with previous runs .
During the run on Washington Mutual in 2008—to date, the run that caused the largest failure of an
insured depository institution by inﬂation-adjusted total assets—depositors withdrew about $17 billion
over the course of eight business days, with the largest deposit withdrawal in one day reaching just
over 2 percent of pre-run deposits .6 By comparison, the highest one-day withdrawal rate was more than
20 percent in the case of SVB and Signature Bank, at the time the second- and third-largest depository
institutions by inﬂation-adjusted total assets, respectively, that failed due to a bank run (figure B) .7 At
SVB, withdrawals would have been even larger had regulators not closed the bank on the morning of
March 10 . Figure B also compares the speed of the runs on Washington Mutual, SVB, and Signature
Bank with the run on Continental Illinois, the fifth-largest depository institution by inﬂation-adjusted
total assets to fail due to a bank run . Continental Illinois sustained sizable withdrawals of uninsured
deposits for six consecutive days in May 1984, with a peak one-day withdrawal rate of 7 .8 percent of
deposits, before a public assistance package was put in place .8 The unprecedented speed of the run
on SVB was likely facilitated by widespread adoption among SVB’s tightly networked depositor base of
technologies enabling depositors to submit withdrawal requests electronically and to share messages
about the bank’s perceived problems via messaging apps and on social media . But the faster speed
of the run in the Continental Illinois case relative to Washington Mutual also points to the role of the
concentration of uninsured deposits .
In international markets, Credit Suisse came under renewed pressure . In recent years, Credit Suisse
had experienced a succession of risk-management, corporate-governance, and compliance failures .
And in 2022, it reported the largest after-tax loss since the 2007–09 financial crisis and experienced
significant deposit outﬂows in the last quarter of the year . During the week of March 13, the firm published its annual report, which was originally scheduled for publication the previous week, and its
(continued)
4

See Federal Deposit Insurance Corporation (2023), FDIC’s Supervision of Signature Bank (Washington: FDIC, April), https://www .
fdic .gov/news/press-releases/2023/pr23033a .pdf .

See New York State Department of Financial Services (2023), “Superintendent Adrienne A . Harris Announces New York
Department of Financial Services Takes Possession of Signature Bank,” press release, March 12, https://www .dfs .ny .gov/
reports_and_publications/press_releases/pr20230312 .

See Office of Thrift Supervision (2008), “OTS Fact Sheet on Washington Mutual Bank,” September 25, www .fcic .gov/documents/
view/905 . The one-day deposit withdrawal rate is estimated using only consumer and small business deposits; see Declaration
of Thomas M . Blake to the U .S . Bankruptcy Court, District of Delaware, Chapter 11 Case No . 08-12229 (MFW) and Adversary Proceeding No . 09-50934 (MFW) (2009) .

After the data close on April 21, 2023, First Republic Bank failed, making it the second-largest depository institution to fail due to
a bank run .

See Mark Carlson and Jonathan Rose (2019), “The incentives of Large Sophisticated Creditors to Run on a Too Big to Fail Financial Institution,” Journal of Financial Stability, vol . 41 (April), pp . 91–104 .

Financial Stability Report

Box 3.1—continued
Figure B. Peak 1-day withdrawal rates for runs on the largest banks, by inflation-adjusted
total assets
Percent of pre-run deposits
Mar. 10, 2023

70
60

Effective outflow
Scheduled or expected outflow

50
40

Mar. 9, 2023

20
May 17, 1984

Sept. 18, 2008
Washington Mutual

Mar. 10, 2023

Silicon Valley Bank

Signature Bank

Continental Illinois

10
0

Sources: For Washington Mutual, Jonathan D Rose (2015), “Old-Fashioned Deposit Runs,” Finance and
Economics Discussion Series 2015-111 (Washington: Board of Governors of the Federal Reserve System,
December) . For Silicon Valley Bank, Financial Institutions Examination Council, Consolidated Reports of Condition
and Income; California Department of Financial Protection and Innovation (2023), “Order Taking Possession of
Property and Business” (San Francisco: DFPI, March 10); and Board of Governors of the Federal Reserve System
(2023), Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank (Washington: Board
of Governors, April) . For Signature Bank, Federal Deposit Insurance Corporation (2023), FDIC’s Supervision of
Signature Bank, (Washington: FDIC, April) . For Continental Illinois, Mark Carlson and Jonathan Rose (2019), “The
Incentives of Large Sophisticated Creditors to Run on a Too Big to Fail Financial Institution,” Journal of Financial
Stability, vol . 41 (April), pp . 91–104 .

largest shareholder announced it would not buy additional shares in the bank . The bank stock price
declined further, and on March 16, Credit Suisse announced its intention to access emergency liquidity
support provided by the Swiss National Bank for up to CHF 50 billion . Despite the announcement of
this liquidity support, investors’ confidence continued to deteriorate, as reﬂected by the continued price
decline of Credit Suisse shares (as shown in figure A) . On Sunday, March 19, UBS agreed to merge
with Credit Suisse in a deal that involved triggering the write-off of a certain type of Credit Suisse’s
contingent convertible capital instruments, as well as liquidity support and loss sharing from the Swiss
government . In addition, on Sunday, March 19, the Federal Reserve, together with other central banks,
announced measures to enhance the provision of liquidity in global funding markets (see the box “The
Federal Reserve’s Actions to Protect Bank Depositors and Support the Flow of Credit to Households
and Businesses”) . The spillovers of the stresses related to Credit Suisse to the U .S . have so far
been muted .
Following the runs on SVB and Signature Bank, First Republic Bank, an institution supervised by the
FDIC with $213 billion in assets at the end of 2022, experienced notable deposit outﬂows between
March 10 and March 16 . The bank’s equity price declined significantly through the end of March and
declined even further following the publication of its first quarter earnings on April 24 . The California
Department of Financial Protection and Innovation took possession of First Republic Bank before markets opened on Monday, May 1, appointing the FDIC as receiver .9 At the same time, the FDIC entered
into a purchase and assumption agreement with JPMorgan Chase Bank to assume all of the deposits
and most of the assets of the failed bank, with the bank and the FDIC entering into a loss-sharing
agreement .10
9

See the order taking possession of property and business from the Department of Financial Protection and Innovation of the State of California available on the department’s website at https://dfpi .ca .gov/2023/05/01/
california-financial-regulator-takes-possession-of-first-republic-bank/ .

See Federal Deposit Insurance Corporation (2023), “JPMorgan Chase Bank, National Association, Columbus, Ohio Assumes
All the Deposits of First Republic Bank, San Francisco, California,” press release, May 1, https://www .fdic .gov/news/pressreleases/2023/pr23034 .html .

Leverage in the Financial Sector

On April 28, 2023, the Federal Reserve published a report examining the factors that contributed
to the failure of SVB and the role of the Federal Reserve, which was the primary federal supervisor
for the bank and its holding company, Silicon Valley Bank Financial Group.10 That same day, the
FDIC published a report examining the failure of Signature Bank, whose primary federal supervisor
was the FDIC.11

Banks’ risk-based capital remained within the range established
over the past decade, but tangible common equity declined at
non–global systemically important banks
Notwithstanding the banking stress in March, high levels of capital and moderate interest rate risk
exposures mean that a large majority of banks are resilient to potential strains from higher interest rates. As of the fourth quarter of 2022, banks in the aggregate were well capitalized, especially U.S. global systemically important banks (G-SIBs). The common equity Tier 1 (CET1) ratio—a
regulatory risk-based measure of bank capital
adequacy—remained close to the median
of its range since the end of the 2007–09
financial crisis (figure 3.3). In the second

Figure 3.3. Banks’ risk-based capital ratio
remained near the median level since the
2007–09 financial crisis

half of 2022, G-SIBs increased their CET1
ratios by cutting back on stock repurchases

Percent of risk-weighted assets
Q4

Quarterly

and reducing risk-weighted assets to meet

higher capital requirements resulting from an

increase in their 2023 G-SIB surcharges—that
is, the amount of capital G-SIBs must have
above their minimum capital requirements and

8
G-SIBs
Large non–G-SIBs
Other BHCs

that continued to grow their risk-weighted
assets, though their CET1 ratios remained

4
2

stress capital buffers. In contrast, CET1 ratios
decreased at large non-G-SIB and other banks

2001 2004 2007 2010 2013 2016 2019 2022

Source: Federal Reserve Board, Form FR Y-9C,
Consolidated Financial Statements for Holding
Companies.

well above requirements.
The ratio of tangible common equity to total tangible assets—a measure of bank capital that does
not account for the riskiness of credit exposures and, like CET1, excludes intangible items such as
goodwill from capital—edged up at G-SIBs in the fourth quarter of 2022 but continued to decline
at large non-G-SIB and other banks (figure 3.4). The decreases in tangible common equity ratios of

See Board of Governors of the Federal Reserve System (2023), Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank (Washington: Board of Governors, April), https://www.federalreserve.gov/publications/files/
svb-review-20230428.pdf.

See Federal Deposit Insurance Corporation (2023), FDIC’s Supervision of Signature Bank (Washington: FDIC, April),
https://www.fdic.gov/news/press-releases/2023/pr23033a.pdf.

Financial Stability Report

Figure 3.4. The ratio of tangible common equity to tangible assets increased for global systemically
important banks but decreased for other banks
Percent of tangible assets
Quarterly

12
10
8

G-SIBs
Large non–G-SIBs
Other BHCs

1986

1992

1998

2004

2010

4
2

2016

2022

Source: For data through 1996, Federal Financial Institutions Examination Council, Call Report Form FFIEC 031,
Consolidated Reports of Condition and Income (Call Report). For data from 1997 onward, Federal Reserve Board, Form
FR Y-9C, Consolidated Financial Statements for Holding Companies; and Federal Financial Institutions Examination
Council, Call Report Form FFIEC 031, Consolidated Reports of Condition and Income (Call Report).

non–G-SIBs were partly due to a substantial drop in tangible equity from declines in fair value on
Treasury and agency-guaranteed mortgage-backed securities in AFS portfolios.

Banks’ overall vulnerability to future credit losses appeared
moderate
Aggregate credit quality in the nonfinancial sector remained strong even as delinquency rates in
certain loan segments—such as auto loans, credit cards, and CRE loans backed by office and
retail buildings—have increased. Borrower leverage for bank commercial and industrial (C&I)
loans continued to trend downward in the fourth quarter of 2022 relative to the start of the year
(figure 3.5). Moreover, according to data from the January 2023 SLOOS, banks continued to
tighten lending standards on C&I loans and CRE loans in the second half of 2022 (figure 3.6;

Figure 3.5. Borrower leverage for bank
commercial and industrial loans continued
to decrease

Figure 3.6. Lending standards for bank
commercial and industrial loans have tightened

Quarterly

36
34
32

Q4
Non-publicly-traded ﬁrms
Publicly traded ﬁrms

2013

2016

2019

2022

Source: Federal Reserve Board, Form FR Y-14Q
(Schedule H.1), Capital Assessments and Stress
Testing.

Tightening

Net percentage of banks reporting
Debt as percentage of assets

Quarterly

30
28

Easing

26
24

1997

2002

2007

2012

2017

2022

100
80
60
40
20
0
−20
−40
−60
−80
−100

Source: Federal Reserve Board, Senior Loan Officer
Opinion Survey on Bank Lending Practices; Federal
Reserve Board staff calculations.

Leverage in the Financial Sector

see also figure 1.16). At the same time, most banks reported weaker loan demand, especially in
interest-rate-sensitive segments such as residential real estate and CRE. A material decrease in
commercial property prices could lead to credit losses for banks with sizable CRE exposures (see
the box “Financial Institutions’ Exposure to Commercial Real Estate Debt”). Overall, bank profitability was below its 2021 level but close to its pre-pandemic average.

Leverage at broker-dealers remained low
Broker-dealer leverage ratios decreased slightly in 2022:Q4 and remained near their recent historically low levels (figure 3.7). Dealers’ equity growth has generally kept up with the growth of their
assets, boosted in part by trading profits that have remained strong despite seasonal declines
in 2022:Q4 (figures 3.8 and 3.9). Net secured borrowing of primary dealers has increased since

Figure 3.7. Leverage at broker-dealers
remained historically low

Figure 3.8. Trading profits decreased in
2022:Q4, consistent with seasonal patterns

Ratio of assets to equity
Quarterly

Millions of dollars

Monthly average

40
30
20
Q4

1997

2002

2007

2012

2017

2022

Dec.

2018

Source: Federal Reserve Board, Statistical Release Z.1,
“Financial Accounts of the United States.”

2019

2020

2021

2022

1000
900
800
700
600
500
400
300
200
100
0

Source: Federal Reserve Board, Reporting,
Recordkeeping, and Disclosure Requirements
Associated with Regulation VV (Proprietary Trading and
Certain Interests in and Relationships with Covered
Funds, 12 C.F.R. pt. 248).

Figure 3.9. Shares of trading profits by trading desks
Percent
Monthly average
Equity
Fixed income, rates, and credit
Other

2018

Dec.

2019

2020

2021

2022

100
80
60
40
20
0

Source: Federal Reserve Board, Reporting, Recordkeeping, and Disclosure Requirements Associated with Regulation VV
(Proprietary Trading and Certain Interests in and Relationships with Covered Funds, 12 C.F.R. pt. 248).

Financial Stability Report

the November report but remained near its historical average, while gross financing and borrowing have increased. Primary dealer Treasury market activities, including market making and repo,
increased since the November report but did not keep pace with the amount of Treasury securities
available to investors. During the volatile period in mid-March, dealers faced elevated client flows
that resulted in their inventories of Treasury securities increasing somewhat, suggesting that dealers continued to intermediate in Treasury markets.
In the March 2023 Senior Credit Officer Opinion Survey on Dealer Financing Terms (SCOOS), which
covered the period between December 2022 and February 2023, dealers reported that they had,
on net, tightened terms associated with securities financing and over-the-counter derivatives transactions offered to REITs and nonfinancial corporations.12 Respondents also reported that liquidity
and market functioning for non-agency residential mortgage-backed securities and consumer
asset-backed securities (ABS) had improved. In response to a set of special questions about volatility products referencing interest rates, foreign exchange (FX), and credit spreads, respondents
reported that, since January 2021, clients’ interest in trading volatility products had increased,
driven by increased demand for hedging volatility, and that market liquidity and functioning had
improved for FX and credit spread volatility products.

Leverage at life insurers edged up but remained below its
pandemic peak
Leverage at life insurers increased slightly

Figure 3.10. Leverage at life insurance
companies edged up but remained below its
pandemic peak
Ratio of assets to equity
Quarterly

Life
Property and casualty

since the previous report, but it remained
near the middle of its historical range and well
15
12

at property and casualty insurers stayed low
relative to historical levels (figure 3.10). Life

insurers continued to allocate a high per-

centage of assets to instruments with higher

3
2001 2004 2007 2010 2013 2016 2019 2022

below its pandemic peak. Meanwhile, leverage

Source: Generally accepted accounting principles data
from 10-Q and 10-K filings accessed via S&P Global,
Capital IQ Pro.

credit or liquidity risk, such as high-yield corporate bonds, privately placed corporate bonds,
and alternative investments. These assets
can suffer sudden increases in default risk,
putting pressure on insurer capital positions.
Rising interest rates have likely had a positive
effect on the profitability of life insurers, as
their liabilities generally had longer effective

The SCOOS is available on the Federal Reserve’s website at https://www.federalreserve.gov/data/scoos.htm.

Leverage in the Financial Sector

durations than their assets. However, an unexpected and sharp surge in interest rates may induce
policyholders to surrender their contracts at a higher-than-expected rate, potentially causing some
funding strains.

Hedge fund leverage remained somewhat elevated, especially at the
largest funds
According to comprehensive data collected by the Securities and Exchange Commission (SEC),
average on-balance-sheet leverage and average gross leverage of hedge funds, which includes offbalance-sheet derivatives exposures, remained above their historical averages in the third quarter of 2022 (figure 3.11). While average financial leverage was modest, leverage at the largest
hedge funds was substantially higher. The average on-balance-sheet leverage of the top 15 hedge
funds by gross asset value, which at times has exceeded 20-to-1, decreased in 2022:Q3 to
about 14-to-1 (figure 3.12). These high levels of leverage are consistent with the low haircuts on
Treasury collateral in the noncentrally cleared bilateral repo market.13 More recent data from the
March 2023 SCOOS suggested that the use of financial leverage by hedge funds had not changed,
on net, between December 2022 and February 2023 amid unchanged price and nonprice borrowing terms (figure 3.13).

Figure 3.11. Leverage at hedge funds remained
elevated
Ratio
Quarterly

Mean
Median

2013

2016

2019

2022

10
9
8
7
6
5
4
3
2
1
0

Source: Securities and Exchange Commission,
Form PF, Reporting Form for Investment Advisers to
Private Funds and Certain Commodity Pool Operators
and Commodity Trading Advisors.

Figure 3.12. Leverage at the largest hedge
funds decreased but remained high
Ratio
Quarterly

30
25

Top 15, by gross asset value
16–50, by gross asset value
51+, by gross asset value

20
15
Q3

10
5
0

2013

2016

2019

2022

Source: Securities and Exchange Commission,
Form PF, Reporting Form for Investment Advisers to
Private Funds and Certain Commodity Pool Operators
and Commodity Trading Advisors.

Data from the Commodity Futures Trading Commission Traders in Financial Futures report showed
that, before the bank stresses of March 2023, leveraged funds’ short Treasury futures positions
had increased notably since the November report. In the past, high levels of short positions
13

See Samuel J. Hempel, R. Jay Kahn, Robert Mann, and Mark Paddrik (2022), “OFR’s Pilot Provides Unique Window
into the Non-centrally Cleared Bilateral Repo Market,” The OFR Blog, December 5, https://www.financialresearch.gov/
the-ofr-blog/2022/12/05/fr-sheds-light-on-dark-corner-of-the-repo-market.

Financial Stability Report

Figure 3.13. Dealers indicated that the use of leverage by hedge funds was unchanged recently
Net percentage
Quarterly
Q1

40
20
0
−20

Hedge funds
Trading REITs
Insurance companies
Mutual funds

2013

2015

2017

−40
−60
2019

2021

2023

−80

Source: Federal Reserve Board, Senior Credit Officer Opinion Survey on Dealer Financing Terms.

in Treasury futures held by leveraged funds coincided with hedge fund activities in Treasury
cash-futures basis trades, and that trade may have gained in popularity recently as well. The basis
trade is often highly leveraged and involves the sale of a Treasury futures and the purchase of
a Treasury security deliverable into the futures contract, usually financed through repo.14 Amid
increased interest rate volatility following the SVB failure, some hedge funds that were short Treasury futures or were engaged in other bets that U.S. short-term rates would continue to rise faced
margin calls and partially unwound those positions. The unwinds may have contributed to the
large movements and increased volatility in short-term Treasury markets and to volatility in interest
rate markets.
Like hedge funds, private credit funds are private pooled investment vehicles about which relatively little is known. The box “Financial Stability Risks from Private Credit Funds Appear Limited”
assesses the vulnerabilities posed by private credit funds.

Issuance of non-agency securities by securitization vehicles
has slowed
Non-agency securitization issuance—which increases the amount of leverage in the financial
system—slowed significantly in 2022 and in the first quarter of 2023 (figure 3.14).15 In particular,

Between 2018 and March 2020, hedge funds built up large positions in the basis trade, which were then unwound,
along with other Treasury trades, in March 2020 and reportedly contributed to Treasury market dislocations at that time.
See Ayelen Banegas, Phillip J. Monin, and Lubomir Petrasek (2021), “Sizing Hedge Funds’ Treasury Market Activities and
Holdings,” FEDS Notes (Washington: Board of Governors of the Federal Reserve System, October 6), https://doi.org/
10.17016/2380-7172.2979.

Securitization allows financial institutions to bundle loans or other financial assets and sell claims on the cash flows
generated by these assets as tradable securities, much like bonds. By funding assets with debt issued by investment
funds known as special purpose entities (SPEs), securitization can add leverage to the financial system, in part because
SPEs are generally subject to regulatory regimes, such as risk retention rules, that are less stringent than banks’ regulatory capital requirements. Examples of the resulting securities include collateralized loan obligations (predominantly
backed by leveraged loans), ABS (often backed by credit card and auto debt), CMBS, and residential mortgage-backed
securities.

Leverage in the Financial Sector

Figure 3.14. Issuance of non-agency securitized products has slowed significantly since 2021
Billions of dollars (real)
Annual

Other
Private-label RMBS
Non-agency CMBS
Auto loan/lease ABS
CDOs (including CLOs and ABS CDOs)

3000
2500
2000
1500
1000
500

2002

2005

2008

2011

2014

2017

2020

2023

Source: Green Street, Commercial Mortgage Alert’s CMBS Database and Asset-Backed Alert’s ABS Database;
consumer price index, Bureau of Labor Statistics via Haver Analytics.

non-agency CMBS issuance volumes were well below their five-year averages. Credit spreads of
non-agency securitized products have narrowed since the November report. However, spreads
between senior and junior tranches were higher, particularly for those deal types experiencing
weakness in underlying credit, such as subprime consumer ABS deals and CMBS. Most securitization sectors exhibited relatively stable credit performance, indicated by low loan delinquency or
default rates compared with historical long-term averages. However, delinquencies in non-agency
CMBS backed by CRE remained relatively high.

Bank lending to nonbank financial institutions remained high
The growth in bank lending to NBFIs, which can be informative about the amount of leverage
used by NBFIs and shed light on their interconnectedness with the rest of the financial system,
slowed significantly since the November report. Banks’ credit commitments to NBFIs grew rapidly in recent years and reached about $2 trillion in the fourth quarter of 2022 (figure 3.15). The
year-over-year growth rate in committed amounts to special purpose entities and securitization

Figure 3.15. Bank credit commitments to nonbank financial institutions remained high
Billions of dollars
Quarterly
1. Financial transactions processing
2. Private equity, BDCs, and credit funds
3. Broker-dealers
4. Insurance companies
5. REITs
6. Open-end investment funds
7. Special purpose entities, CLOs, and ABS
8. Other ﬁnancial vehicles
9. Real estate lenders and lessors
10. Consumer lenders, other lenders, and lessors

3
4
6

Q4 1
2

7
8
9
10

2018

2019

2020

2021

2022

Source: Federal Reserve Board, Form FR Y-14Q (Schedule H.1), Capital Assessments and Stress Testing.

2250
2000
1750
1500
1250
1000
750
500
250
0

Financial Stability Report

vehicles was about 40 percent at the end of last year, more than double its growth rate in 2021
(figure 3.16). Banks are also important creditors to nonbank mortgage companies. Nonbank mortgage companies’ profitability has come under pressure as mortgage originations have declined;
should mortgage delinquencies rise, some of these companies could become distressed and see
a reduction in their access to credit. Utilization rates on credit lines to NBFIs remained steady and
averaged about 50 percent of total committed amounts. Delinquency rates on banks’ lending to
NBFIs have been lower than delinquency rates for the nonfinancial business sector since the data
became available in 2013. However, the limited information available on NBFIs’ alternative funding sources, and the extent to which those sources may be fragile, could contribute to increased
vulnerabilities in the financial sector.

Figure 3.16. Aggregate loan commitments and utilization rates of nonbank financial institutions
increased during 2022 but varied across sectors
Percent
Committed amounts
Utilized amounts

REITs

Financial Consumer, Insurance
PE,
transactions leasing, companies BDCs,
processing & other
& credit
lenders
funds

Broker- Open-end
dealers investment
funds

SPEs,
CLOs,
& ABS

Real
Other
estate
ﬁnancial
lenders vehicles
& lessors

Total

Source: Federal Reserve Board, Form FR Y-14Q (Schedule H.1), Capital Assessments and Stress Testing.

60
50
40
30
20
10
0
−10
−20
−30
−40

Leverage in the Financial Sector

Box 3.2. Financial Stability Risks from Private Credit Funds
Appear Limited
Private credit refers to direct lending to businesses by nonbank institutions and is distinct from bank
loans, leveraged loans, or corporate bonds that involve lending by banks, by bank-led syndicates, or
through public markets, respectively . Within the private credit market, private credit funds are the largest class of lenders and manage over five times more in assets than business development companies, the second-largest class of lenders . Private credit funds are pooled investment vehicles that originate or invest in loans to private—that is, not publicly traded—businesses . Only institutional investors
or high-net-worth individuals are eligible to invest in such funds . Despite private credit funds’ growing
presence, available information about their activities and risks is limited . Using the SEC Form PF data,
this discussion examines the financial stability risks that private credit funds can pose through their
use of financial leverage or through liquidity transformation .1 The analysis suggests that such risks are
likely limited . While private credit funds have grown rapidly since the 2007–09 financial crisis and the
assets they hold are mostly illiquid, the funds typically use little leverage, and investor redemption risks
appear low . However, the sector remains opaque, and it is difficult to assess the default risk in private
credit portfolios .
Since the 2007–09 financial crisis, private credit
funds have experienced substantial growth, as
the privately negotiated loans that they extend
have become an increasingly important source
of credit for some businesses, particularly
middle-market companies .2 As of 2021:Q4,
their assets under management (AUM) stood
at $1 trillion, and the estimated “dry powder”
(committed but uncalled capital) amounted to
$228 billion (figure A) .3 The industry grew further
in 2022, according to private-sector estimates .4
Over the past decade, private credit fund assets
grew faster than leveraged loans (at annual
rates of 13 percent and 10 percent, respectively) and as of 2021:Q4 were similar in size to
the volume of outstanding leveraged loans and
U .S . high-yield bonds (approximately $1 .4 trillion
and $1 .5 trillion, respectively) .
(continued)

Figure A. Private credit fund assets and
dry powder
3000

Count

Billions of dollars

Annual

2500

1000

Assets (right scale)
Dry powder (right scale)
Count of funds
(left scale)

2000
1500

1200

800
600

1000

400

500

200

2012

2015

2018

2021

Source: Securities and Exchange Commission,
Form PF, Reporting Form for Investment Advisers
to Private Funds and Certain Commodity Pool
Operators and Commodity Trading Advisors;
Federal Reserve Board staff calculations .

Private credit funds are structured as “private funds”—that is, issuers that would be investment companies according to
the Investment Company Act of 1940 but for section 3(c)(1) or 3(c)(7) of that act . SEC-registered investment advisers with
$150 million or more in regulatory assets under management in private funds provide information about their private funds on
Form PF . Form PF does not break out private credit funds . To identify private credit funds in Form PF, Board staff (1) name-matched
a sample of private credit funds from PitchBook; (2) searched fund names for terms commonly included in private credit fund
names (for example, “senior credit” and “mezzanine”); (3) included funds filing as hedge funds on Form PF whose reported strategy allocations were mostly to private credit (based on a keyword search of strategy descriptions); and (4) removed collateralized
loan obligations (CLOs), collateralized debt obligations (CDOs), and various types of other funds (for example, equity hedge funds)
that were erroneously included in the previous steps . The sample does not include business development companies, CLOs or
CDOs, registered investment companies pursuing private credit strategies, or private credit funds that are too small or are not
required to file Form PF .

Middle-market businesses are defined by the National Center for the Middle Market at Ohio State University’s Fisher College of
Business as businesses with annual revenues between $10 million and $1 billion .

For comparison, business development companies, the second-largest class of lenders, managed about $180 billion in assets .

Preqin estimates that the industry’s total AUM grew by 8 .9 percent in 2022 .

Financial Stability Report

Box 3.2—continued
Private credit funds follow a diverse set of investment strategies and invest in loans with varying characteristics . Direct lending funds are the largest category of private credit funds in terms of assets .
These funds hold senior secured, unrated, ﬂoating-rate loans to middle-market companies . Some private credit funds invest in loans that are categorized under a broad class of credit opportunities . For
instance, distressed credit funds lend to businesses experiencing liquidity problems or invest in deeply
discounted debt . Regardless of strategy, the loans held by private credit funds appear largely illiquid,
with their valuations not based on prices readily available in active markets .5
Figure B. Shares of private credit fund
assets held by different investors
Public
pensions

Other

Private
pensions

Nonprofits
Sovereign
wealth funds
Individuals

Private
funds
Insurance

Investors in private credit funds are diversified institutional investors and high-net-worth
individuals (figure B) . Based on Form PF, as of
2021:Q4, public and private pension funds held
about 31 percent ($307 billion) of aggregate
private credit fund assets . Other private funds
made up the second-largest cohort of investors
at 14 percent ($136 billion) of assets, while
insurance companies and individual investors
each had about 9 percent ($92 billion) . Given
the rapid growth of private credit funds, these
investors are increasingly indirectly exposed to
the liquidity and credit risks of assets in private
credit fund portfolios .

Financial stability risks associated with investor
redemptions from private credit funds appear
low . Most private credit funds have a closed-end
fund structure and typically lock up the capital
of their investors (that is, limited partners) for
5 to 10 years . Those funds that are structured
as hedge funds routinely restrict share redemptions of their investors through redemption notice
periods, lockups, and gates .6 Thus, private credit funds engage in limited liquidity and maturity
transformation .
Although private credit funds are not runnable themselves, they can pose liquidity demands on their
investors in the form of capital calls, the timing of which investors do not control .7 Generally, investors
have 10-day notice periods to provide capital when called, though notice periods may differ across
funds . Although most institutional investors would likely be able to manage such capital calls, unanticipated calls may pose a liquidity risk for some investors, potentially forcing them to sell other assets to
raise liquidity .
Risks to financial stability from leverage at private credit funds appear low . Indeed, most private
credit funds are unlevered, with no borrowings or derivative exposures . A minority of funds, however,
(continued)

The majority of private credit funds’ assets rely on values quoted by market participants or estimated by valuation models rather
than through real-time transactions; hence, they are classified as Level 2 or 3 under generally accepted accounting principles .

For the purposes of filing Form PF, a private equity fund is a private fund that does not offer investors redemption rights in the
ordinary course and is not a hedge fund or one of the other types of funds defined in the form (liquidity fund, real estate fund,
securitized asset fund, or venture capital fund) . There is no requirement that a private equity fund conduct private equity transactions such as leveraged buyouts . On Form PF, a hedge fund is defined as a private fund whose adviser may be paid a performance
fee, can take leverage, and can sell securities short; the definition does not mention investor share restrictions .

It is estimated that, as of 2021:Q4, pensions had $69 billion in uncalled capital commitments to private credit funds, while insurance companies had $23 billion . Uncalled capital (dry powder) is estimated as regulatory AUM (which includes uncalled capital
commitments) minus total balance sheet assets .

Leverage in the Financial Sector

Box 3.2—continued
use modest amounts of financial or synthetic
leverage . Figure C shows that the most levered
funds (those at the 95th percentile) have
borrowings-to-assets ratios of about 1 .27 and
derivatives-to-assets ratios of about 0 .66 . In the
aggregate, private credit funds borrowed about
$200 billion in 2021:Q4, mainly from U .S . financial institutions, and held about $200 billion of
derivative gross notional exposure .8 Risks to
lenders of private credit funds, typically banks,
appear moderate due to the relatively modest
amount of borrowings of private credit funds and
their secured nature .

Figure C. Leverage ratios of private
credit funds
Ratio
Annual

Borrowings-to-assets, 95th percentile
Derivatives-to-assets, 95th percentile

1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0

Overall, the financial stability vulnerabilities
2013
2015
2017
2019
2021
posed by private credit funds appear limited .
Source: Securities and Exchange Commission,
Most private credit funds use little leverage and
Form PF, Reporting Form for Investment Advisers
to Private Funds and Certain Commodity Pool
have low redemption risks, making it unlikely
Operators and Commodity Trading Advisors;
that these funds would amplify market stress
Federal Reserve Board staff calculations .
through asset sales . However, a deterioration
in credit quality and investor risk appetite could
limit the capacity of private credit funds to provide new financing to firms that rely on private credit . Moreover, despite new insights from Form PF, visibility into the private credit space remains limited . Comprehensive data are lacking on the forms and
terms of the financing extended by private credit funds or on the characteristics of their borrowers and
the default risk in private credit portfolios .
8

Form PF has detailed data on derivative exposures for only the relatively small subset of private credit funds filing as qualifying
hedge funds . The derivatives exposures of these funds are concentrated in credit default swaps, FX derivatives, and interest rate
derivatives .

Funding Risks

Funding strains were notable for some banks, but overall funding
risks across the banking system were low; meanwhile, structural
vulnerabilities persisted in other sectors that engage in liquidity
transformation
The failures of SVB and Signature Bank, along with strains at some other banks, highlighted
vulnerabilities associated with high concentrations of uninsured deposits. Uninsured deposits
are prone to runs, in part because they lack an explicit government guarantee. From the start of
the pandemic in 2020 to the end of 2021—a period when interest rates remained low—banks
received $3.7 trillion in domestic deposits, most of which were uninsured. As interest rates
increased throughout 2022, bank deposits became less attractive for depositors and banks experienced outflows, led by uninsured deposits. As of the fourth quarter of 2022, aggregate uninsured
deposits stood at $7.5 trillion. Although aggregate levels of uninsured deposits in the banking system were high, SVB and Signature Bank were outliers in terms of their heavy reliance on uninsured
deposits, as most banks had a much more balanced mix of liabilities.
Overall, estimated runnable money-like financial liabilities decreased 1.6 percent to $19.6 trillion
(75 percent of nominal GDP) over the past year. As a share of GDP, runnable liabilities continued
their post-pandemic decline but remained above their historical median (table 4.1 and figure 4.1).
Large banks that were subject to the liquidity coverage ratio (LCR) continued to maintain levels of
high-quality liquid assets (HQLA) that suggested that their liquid resources would be sufficient to
withstand expected short-term cash outflows.
Prime MMFs and other cash-investment vehicles remain vulnerable to runs and, hence, contribute
to the fragility of short-term funding markets. In addition, some cash management vehicles, including retail prime MMFs, government MMFs, and short-term investment funds, maintain stable net
asset values (NAVs) that make them susceptible to sharp increases in interest rates. The market
capitalization of the stablecoin sector continued to decline, and the sector remains vulnerable
to liquidity risks like those of cash-like vehicles. Some open-end bond mutual funds continued to
be susceptible to large redemptions because they must allow shareholders to redeem every day
even though the funds hold assets that can face losses and become illiquid amid stress. Liquidity
risks at central counterparties (CCPs) remained low, while liquidity risks at life insurers appeared
elevated.

Financial Stability Report

Table 4.1. Size of selected instruments and institutions
Item

Outstanding/total assets
(billions of dollars)

Growth,
2021:Q4–2022:Q4
(percent)

Average annual growth,
1997–2022:Q4
(percent)

Total runnable money-like liabilities*

19,627

−1.6

4.7

Uninsured deposits

7,506

−6.8

12.0

Domestic money market funds**

4,685

5.4

3,959

−3.6

15.3

Prime

616

37.7

−.7

Tax exempt

111

27.1

−2.2

Repurchase agreements

3,601

−1.6

4.9

Commercial paper

1,261

15.8

2.7

805

2.8

7.1

4,250

−20.4

8.5

Government

Securities lending***
Bond mutual funds

Note: The data extend through 2022:Q4 unless otherwise noted. Outstanding amounts are in nominal terms. Growth rates are measured from
Q4 of the year immediately preceding the period through Q4 of the final year of the period. Total runnable money-like liabilities exceed the sum
of listed components. Unlisted components of runnable money-like liabilities include variable-rate demand obligations, federal funds, funding-agreement-backed securities, private liquidity funds, offshore money market funds, short-term investment funds, local government investment
pools, and stablecoins.
* Average annual growth is from 2003:Q1 to 2022:Q4.
** Average annual growth is from 2001:Q1 to 2022:Q4.
*** Average annual growth is from 2000:Q1 to 2022:Q3. Securities lending includes only lending collateralized by cash.
Source: Securities and Exchange Commission, Private Funds Statistics; iMoneyNet, Inc., Offshore Money Fund Analyzer; Bloomberg Finance
L.P.; Securities Industry and Financial Markets Association: U.S. Municipal Variable-Rate Demand Obligation Update; Risk Management Association, Securities Lending Report; DTCC Solutions LLC, an affiliate of the Depository Trust & Clearing Corporation: commercial paper data;
Federal Reserve Board staff calculations based on Investment Company Institute data; Federal Reserve Board, Statistical Release Z.1, “Financial
Accounts of the United States”; Federal Financial Institutions Examination Council, Consolidated Reports of Condition and Income (Call Report);
Morningstar, Inc., Morningstar Direct; DeFiLlama.

Figure 4.1. Ratios of runnable money-like liabilities to GDP edged down but remained above their
historical medians
Percent of GDP
Quarterly

1. Other
2. Securities lending
3. Commercial paper

4. Domestic money market funds
5. Repurchase agreements
6. Uninsured deposits

100
Q4

2002

2006

2010

2014

2018

120

1
2
3

80
60

2022

Source: Securities and Exchange Commission, Private Funds Statistics; iMoneyNet, Inc., Offshore Money Fund Analyzer;
Bloomberg Finance L.P.; Securities Industry and Financial Markets Association: U.S. Municipal Variable-Rate Demand
Obligation Update; Risk Management Association, Securities Lending Report; DTCC Solutions LLC, an affiliate of the
Depository Trust & Clearing Corporation: commercial paper data; Federal Reserve Board staff calculations based on
Investment Company Institute data; Federal Reserve Board, Statistical Release Z.1, “Financial Accounts of the United
States”; Federal Financial Institutions Examination Council, Consolidated Reports of Condition and Income (Call
Report); Bureau of Economic Analysis, gross domestic product via Haver Analytics; DeFiLlama.

Funding Risks

The amount of high-quality liquid assets decreased for banks but
remained high compared with pre-pandemic levels
The amount of HQLA decreased across all types of banks over the past year, driven by decreases
in reserves and reductions in market values of securities portfolios due to rising interest rates
(figure 4.2). Nevertheless, aggregate bank reserves remained above $3 trillion, significantly higher
than pre-pandemic levels. Throughout 2022, as interest rates increased, deposit outflows picked
up, as higher-paying deposit alternatives became more attractive to businesses and households.
Deposits declined in the fourth quarter of 2022 at a 7 percent annual rate, and the pace of
outflows had increased somewhat in January and February before the banking sector stress in
March 2023. Some banks increased their reliance on wholesale funding sources, though banks’
overall reliance on short-term wholesale funding remained near historically low levels (figure 4.3).
Even with the declines in HQLA, U.S. G-SIBs’ LCRs—the requirement that banks must hold enough
HQLA to fund estimated cash outflows during a hypothetical stress event for 30 days—remained
well above requirements.

Figure 4.2. The amount of high-quality liquid
assets held by banks decreased in 2022
Percent of assets
Quarterly

Figure 4.3. Banks’ reliance on short-term
wholesale funding remained low
32
28

G-SIBs
Large non–G-SIBs
Other BHCs

Percent of assets
Quarterly

12
Q4

2001 2004 2007 2010 2013 2016 2019 2022
Source: Federal Reserve Board, Form FR Y-9C,
Consolidated Financial Statements for Holding
Companies.

15
10

4
0

2001 2004 2007 2010 2013 2016 2019 2022

Source: Federal Reserve Board, Form FR Y-9C,
Consolidated Financial Statements for Holding
Companies.

Some banks that relied heavily on uninsured deposits experienced
notable funding strains
Aggregate liquidity in the banking system appeared ample; nonetheless, some banks experienced
significant funding strains following the failures of SVB and Signature Bank (see the box “The
Bank Stresses since March 2023”). These banks, including First Republic Bank, which subsequently failed, often shared similar weaknesses—notably, a combination of a heavy reliance on
uninsured deposits and excessive exposure to interest rate risk. Data on bank assets and liabilities show that small domestic banks—defined as banks outside the top 25 in terms of domestic

Financial Stability Report

assets—initially experienced rapid deposit outflows in the wake of the SVB and Signature Bank
failures. However, these outflows had slowed considerably by the end of March.16 The Federal
Reserve, together with the U.S. Department of the Treasury and the FDIC, took decisive actions
to reduce funding strains in the banking system (see the box “The Federal Reserve’s Actions to
Protect Bank Depositors and Support the Flow of Credit to Households and Businesses”). Banks
with funding needs increased borrowing from the Federal Reserve, including a notable increase
in discount window borrowing and additional borrowing from the new Bank Term Funding Program
(BTFP). In addition, Federal Home Loan Banks’ total debt outstanding grew about $250 billion, to
$1.5 trillion, during the week ending March 17, 2023, to meet a surge in demand for borrowing by
their member banks.

Structural vulnerabilities remained at some money market funds and
other cash-management vehicles
Prime MMFs remain a prominent vulnerability due to their susceptibility to large redemptions and
the significant role they play in short-term funding markets. Since the November report, AUM in
prime MMFs offered to the public increased $270 billion (53 percent), driven by $240 billion in
inflows into retail prime funds (figure 4.4).

Figure 4.4. Growth in money market funds was concentrated in retail prime funds
Billions of dollars (real)
Monthly

1. Government
2. Tax exempt
3. Retail prime
4. Institutional prime

4500
3750
3000

2250
2
3
4

2002

2005

2008

2011

2014

2017

6000
5250

Feb.

2020

1500
750

2023

Source: Federal Reserve Board staff calculations based on Investment Company Institute data; consumer price index,
Bureau of Labor Statistics via Haver Analytics.

In the immediate aftermath of the failures of SVB and Signature Bank, government MMFs had
a surge in inflows, but prime MMFs experienced a jump in redemptions. Although outflows from
prime MMFs eased after a few days, the episode illustrated again that these funds continue to be
at risk of large redemptions during episodes of financial stress.

See Board of Governors of the Federal Reserve System (2023), Statistical Release H.8, “Assets and Liabilities of Commercial Banks in the United States,” https://www.federalreserve.gov/releases/h8.

Funding Risks

Box 4.1. The Federal Reserve’s Actions to Protect Bank
Depositors and Support the Flow of Credit to Households and
Businesses
In March 2023, the domestic and global banking sector experienced acute stress, following a loss of
confidence in SVB and Signature Bank . After experiencing bank runs of unprecedented speed, SVB and
Signature Bank failed, and there were broader spillovers to the banking sector . Credit Suisse came
under renewed pressure, leading to its acquisition by UBS in a deal that involved liquidity support and
loss sharing from the Swiss government as well as the write-off of a certain type of contingent capital
instruments (see the box “The Bank Stresses since March 2023”) . The fast propagation of these
stresses was compounded by novel factors . Social media and messaging apps facilitated the communication of perceived bank concerns among the network of uninsured depositors, and the availability
of information technology facilitated the movement of deposits . In response, the Federal Reserve,
together with the FDIC and the U .S . Department of the Treasury, took decisive actions to protect bank
depositors and support the continued ﬂow of credit to households and businesses . These actions
reduced stress across the financial system, supporting financial stability and minimizing the effect on
businesses, households, taxpayers, and the broader economy .
On Sunday, March 12, the Federal Reserve, together with the FDIC and the U .S . Department of the
Treasury, announced two actions designed to support all bank depositors and the continued ﬂow of
credit to households and businesses . After receiving a recommendation from the boards of the FDIC
and the Federal Reserve, and consulting with the President, the Treasury Secretary approved a systemic risk exception, enabling the FDIC to complete its resolution of SVB and Signature Bank in a
manner that fully protects all depositors . Depositors were given full access to their accounts on the
Monday following the announcement . In contrast to depositors, shareholders and certain unsecured
debt holders were not protected, and senior management at these banks was removed . The losses
associated with these actions, later estimated by the FDIC to be $22 .5 billion, will not be borne by
taxpayers and instead will be borne by the Deposit Insurance Fund, which will be replenished by special
assessments on banks, as required by law .1
At the same time, on Sunday, March 12, with approval by the Treasury Secretary, the Federal Reserve
Board announced the establishment of the BTFP, making available additional funding to eligible depository institutions . The BTFP offers loans of up to one year in length to federally insured banks, savings
associations, and credit unions, and to U .S . branches and agencies of foreign banks . New loans can
be requested under the BTFP until at least March 11, 2024 . To borrow from the BTFP, eligible institutions can pledge any collateral eligible for purchase by the Federal Reserve in open market operations,
such as U .S . Treasury securities, U .S . agency securities, and U .S . agency mortgage-backed securities .
The BTFP extends loans against the par value of eligible collateral—that is, the face amount of the
securities without giving effect to any declines in fair value . With approval of the Treasury Secretary, the
U .S . Department of the Treasury has committed to make available up to $25 billion from the Exchange
Stabilization Fund as a backstop for the BTFP . The Federal Reserve does not anticipate that it will be
necessary to draw on these backstop funds .
The BTFP will be an additional source of borrowing for depository institutions against high-quality securities, which eliminates an institution’s need to quickly sell those securities should a significant fraction
(continued)

The exact cost of the resolution of SVB and Signature Bank will be determined when the FDIC terminates the receiverships . Current estimates from the FDIC about the cost to its Deposit Insurance Fund from the failure of SVB and Signature Bank are approximately $20 billion and $2 .5 billion, respectively . See Federal Deposit Insurance Corporation (2023), “Subsidiary of New York
Community Bancorp, Inc ., to Assume Deposits of Signature Bridge Bank, N .A ., from the FDIC,” press release, March 19, https://
www .fdic .gov/news/press-releases/2023/pr23021 .html; and Federal Deposit Insurance Corporation (2023), “First–Citizens
Bank & Trust Company, Raleigh, NC, to Assume All Deposits and Loans of Silicon Valley Bridge Bank, N .A ., from the FDIC,” press
release, March 26, https://www .fdic .gov/news/press-releases/2023/pr23023 .html .

Financial Stability Report

Box 4.1.—continued
of depositors withdraw their funding suddenly or the financial system curtail bank funding, helping
assure depositors that banks have the ability to meet the needs of all their customers .
In addition, depository institutions may continue to obtain liquidity against a wide range of collateral
through the discount window, which remains open and available . Moreover, at the same time as the
BTFP was established, it was announced that the discount window will apply the same margins used
for the securities eligible for the BTFP .
Following the acute banking stresses in early
March and the announcements on March 12,
primary credit extended through the discount window increased from less than $5 billion to more
than $150 billion during the first week and quickly
fell back to about $70 billion, whereas credit
extended through the BTFP increased steadily
by smaller increments and stabilized in a range
between $70 billion and $80 billion (figure A) .

Figure A. Outstanding balances of primary
credit and Bank Term Funding Program
Billions of dollars
Weekly
Primary
credit
Bank Term
Funding
Program

180
160
140
120
100
80
60
40
20
0

The Federal Reserve is prepared to address any
liquidity pressures that may arise and is committed to ensuring that the U .S . banking system continues to perform its vital roles of ensuring that
depositors’ savings remain safe and providing
Feb. Mar. Mar. Mar. Mar. Mar. Apr. Apr. Apr.
access to credit to households and businesses
22 1
8 15 22 29 5 12 19
in a manner that promotes strong and sustain2023
able economic growth . These additional funding
Source: Federal Reserve Board, Statistical Release
sources bolster the capacity of the banking sysH .4 .1, “Factors Affecting Reserve Balances .”
tem to safeguard deposits and ensure the ongoing provision of money and credit to the economy .
The additional funding to eligible depository institutions will continue to serve as an important backstop against further bank stresses and support the
ﬂow of credit .
In international markets, Credit Suisse came under renewed pressure, and UBS agreed to merge with
the firm on Sunday, March 19, in a deal that involved the write-off of a certain type of contingent convertible capital instruments as well as liquidity support and loss sharing from the Swiss government .
On Sunday, March 19, the Federal Reserve, together with the Bank of Canada, the Bank of England,
the Bank of Japan, the European Central Bank, and the Swiss National Bank, announced measures
to mitigate the effects of strains on global funding markets via the standing U .S . dollar liquidity swap
line arrangements . The network of swap lines among these central banks is a set of available standing facilities and serves as an important liquidity backstop to ease strains in global funding markets,
thereby helping mitigate the effects of such strains on the supply of credit to U .S . households and
businesses (see the box “Transmission of Stress Abroad to the U .S . Financial System”) . To improve
the swap lines’ effectiveness in providing U .S . dollar funding, these central banks agreed to increase
the frequency of seven-day maturity operations from weekly to daily and to continue at this frequency .
These daily operations commenced on Monday, March 20 . Following the announcement on March 19,
demand for these swap lines ticked up by slightly over $100 million and then fell back to levels below
$500 million observed before the announcement . These central banks announced on April 25 that the
frequency of swap line operations will revert from daily back to once a week beginning on May 1 .

Funding Risks

Other cash-management vehicles, including dollar-denominated offshore MMFs and short-term
investment funds, also invest in money market instruments, engage in liquidity transformation,
and are vulnerable to runs. Since November, estimated aggregate AUM of these cash-management
vehicles has edged up to about $1.7 trillion. Currently, between $600 billion and $1.5 trillion of
these vehicles’ AUM are in portfolios like those of U.S. prime MMFs, and large redemptions from
these vehicles also have the potential to destabilize short-term funding markets.17
Many cash-management vehicles—including retail and government MMFs, offshore MMFs, and
short-term investment funds—seek to maintain stable NAVs that are typically rounded to $1.00.
When short-term interest rates rise sharply or portfolio assets lose value for other reasons, the
market values of these funds may fall below their rounded share prices, which can put the funds
under strain, particularly if they also have large redemptions.

The market value of many stablecoins declined, and they remain
vulnerable to runs
The total market capitalization of stablecoins, which are digital assets designed to maintain a
stable value relative to a national currency or another reference asset, has fallen 21 percent
since the beginning of 2022 to $130 billion. While not widely used as a cash-management vehicle by institutional and retail investors or for transactions for real economic activity, stablecoins
are important for digital asset investors and remain structurally vulnerable to runs. On March 10,
2023, amid reports of large outflows of uninsured deposits at SVB, Circle Internet Financial, which
operates the $31 billion stablecoin USD Coin (USDC), disclosed that it had $3.3 billion in dollar
reserves held at SVB. This disclosure triggered large redemptions of USDC and caused it to drop
temporarily below its target $1 value to as low as 87 cents. Following news of the government
interventions assuring depositors of the safety of uninsured deposits at SVB and Signature Bank,
USDC’s price stabilized near $1.

Bond mutual funds experienced outflows and remained exposed to
liquidity risks
Mutual funds that invest substantially in corporate bonds, municipal bonds, and bank loans may
be particularly exposed to liquidity transformation risks, given the relative illiquidity of their assets
and the requirement that these funds offer redemptions daily. The total outstanding amount of
U.S. corporate bonds held by mutual funds fell to its lowest level since 2013 on an inflationadjusted basis, primarily driven by a drop in valuations (figure 4.5). Mutual fund holdings at the
end of 2022 were approximately 13 percent of all U.S. corporate bonds outstanding. Total AUM
at high-yield bond and bank-loan mutual funds, which primarily hold riskier and less liquid assets,
17

Cash-management vehicles included in this total are dollar-denominated offshore MMFs, short-term investment funds, private
liquidity funds, ultrashort bond mutual funds, and local government investment pools.

Financial Stability Report

Figure 4.5. Corporate bonds held by bond
mutual funds fell sharply
Billions of dollars (real)
Quarterly

Figure 4.6. Assets held by high-yield and bank
loan mutual funds decreased
2100
1800

1500
1200

Billions of dollars (real)

600

Monthly

525

Bank loan mutual funds
High-yield
bond mutual funds

450

Feb.

375
300

900

225

600

150

300
2001 2004 2007 2010 2013 2016 2019 2022

Source: Federal Reserve Board staff estimates based
on Federal Reserve Board, Statistical Release Z.1,
“Financial Accounts of the United States”; consumer
price index, Bureau of Labor Statistics via Haver
Analytics.

75
0

2002 2005 2008 2011 2014 2017 2020 2023
Source: Investment Company Institute; consumer
price index, Bureau of Labor Statistics via Haver
Analytics.

Figure 4.7. Bond and bank loan mutual funds experienced notable outflows during most of the
past year
Billions of dollars

150

Monthly
Investment-grade bond mutual funds
Bank loan mutual funds
High-yield bond mutual funds

100
50
0
−50
−100

Feb. May Aug. Nov. Feb. May Aug. Nov. Feb. May Aug. Nov. Feb. May Aug. Nov. Feb. May Aug. Nov. Feb. May Aug. Nov. Feb.
2017
2018
2019
2020
2021
2022
2023

−150

Source: Investment Company Institute.

decreased sharply in real terms in 2022 (figure 4.6). Bond and loan mutual funds experienced
negative returns and notable outflows during most of 2022 (figure 4.7).
On November 2, 2022, the SEC proposed reforms to the mutual fund sector. The proposed
reforms include making swing pricing mandatory for open-end mutual funds. Swing pricing
imposes costs arising from redemptions on the shareholders who redeem by reducing the NAV
they receive on days when the mutual fund has net outflows. If properly calibrated, swing pricing
could deter redemptions during a stressed market and lessen redeeming shareholders’ first-mover
advantage. The SEC also proposed to enhance its 2016 liquidity risk-management rule for mutual
funds and certain exchange-traded funds. These enhancements include a requirement that funds
hold at least 10 percent of their portfolios in “highly liquid assets” as well as tightened liquidity
classifications.

Funding Risks

Liquidity risks at central counterparties remained low
Liquidity risks posed by CCPs to clearing members and market participants remained low. CCPs
maintained elevated initial margin levels in the third quarter of 2022, the latest quarter for which
data are available, even as volatility decreased in most cleared markets, with the notable exception of interest rate markets. In addition, their levels of prefunded resources were stable.18 Those
CCPs that focused on clearing interest rate products faced some difficulties adapting their margin
models to the higher rate and volatility environment that began last year. During the second half of
2022, these CCPs experienced more frequent initial margin exceedances, in which some clearing
members’ mark-to-market losses exceeded their posted initial margin amounts. Large price moves
and volatility in rates also resulted in large variation margin calls that were met by clearing members and clients. Finally, client clearing remained concentrated at the largest clearing members,
which could make transferring client positions to other clearing members challenging if it were ever
necessary.

Liquidity risks at life insurers remained elevated
Over the past decade, the liquidity of life insurers’ assets steadily declined, and the liquidity of
their liabilities slowly increased, potentially making it more difficult for life insurers to meet a
sudden rise in withdrawals and other claims. Life insurers increased the share of illiquid assets—
including CRE loans, less liquid corporate debt, and alternative investments—on their balance
sheets (figure 4.8). In addition, they have continued to rely on nontraditional liabilities—including

Figure 4.8. Life insurers held more risky, illiquid assets on their balance sheets
Percent share
50
40

Billions of dollars

1. Other asset-backed securities
2. CRE loans
3. CRE loans, securitized

4. Alternative investments
5. Illiquid corporate debt
6. Illiquid corporate debt,
securitized

Share of life insurer assets (left scale)
Share of P&C insurer assets (left scale)

30
20
10
0

2006

2009

2012

2015

2018

2021

2750
2500
2250
2000
1750
1500
1250
1000
750
500
250
0

Source: Staff estimates based on data from Bloomberg Finance L.P. and National Association of Insurance
Commissioners Annual Statutory Filings.

Prefunded resources represent financial assets, including cash and securities, transferred by the clearing members to
the CCP to cover that CCP’s potential credit exposure in case of default by one or more clearing members. These prefunded resources are held as initial margin and prefunded mutualized resources.

Financial Stability Report

funding-agreement-backed securities, Federal Home Loan Bank advances, and cash received
through repos and securities lending transactions—which offer some investors the opportunity to
withdraw funds on short notice (figure 4.9).

Figure 4.9. Life insurers continued to rely on nontraditional liabilities
Billions of dollars (real)
Repurchase agreements
Securities lending cash collateral
FHLB advances
Funding-agreement-backed securities

2006

2008

2010

2012

2014

2016

2018

2020

2022

550
500
450
400
350
300
250
200
150
100
50
0

Source: Consumer price index, Bureau of Labor Statistics via Haver Analytics; Moody’s Analytics, Inc., CreditView,
Asset-Backed Commercial Paper Program Index; Securities and Exchange Commission, Forms 10-Q and 10-K; National
Association of Insurance Commissioners, quarterly and annual statutory filings accessed via S&P Global, Capital IQ
Pro; Bloomberg Finance L.P.

Near-Term Risks to the Financial
System

The Federal Reserve routinely engages in discussions with domestic and international policy
makers, academics, community groups, and others to gauge the issues of greatest concern to
these groups. As noted in the box “Survey of Salient Risks to Financial Stability,” in recent outreach, contacts were particularly focused on more restrictive policy to address persistent inflation,
banking-sector stress, commercial and residential real estate, and geopolitical tensions.
The following discussion considers possible interactions of existing domestic vulnerabilities with
several potential near-term risks, including international risks. The box “Transmission of Stress
Abroad to the U.S. Financial System” discusses some transmission channels through which
shocks originating abroad can transmit to the U.S. financial system.

Ongoing stresses in the banking system could lead to a broader
contraction in credit, resulting in a marked slowdown in economic
activity
Despite decisive actions by the Federal Reserve, the FDIC, and the U.S. Department of the
Treasury, concerns about the economic outlook, credit quality, and funding liquidity could lead
banks and other financial institutions to further contract the supply of credit to the economy. A
sharp contraction in the availability of credit would drive up the cost of funding for businesses and
households, potentially resulting in a slowdown in economic activity. With a decline in profits of
nonfinancial businesses, financial stress and defaults at some firms could increase, especially
in light of the generally high level of leverage in that sector. Additionally, an associated reduction
in investor risk appetite could lead to significant declines in asset prices. Shocks are less likely
to propagate to the financial system through the household sector because household borrowing
is moderate relative to income, and the majority of household debt is owed by those with higher
credit scores.

Further rate increases in the U.S. and other advanced economies
could pose risks
If inflationary pressures prove to be more stubborn than anticipated, tighter-than-expected monetary policy could prompt sharp increases in longer-term interest rates and weaken economic
growth worldwide. These developments could strain the debt service capacity of governments,
households, and businesses abroad, including in emerging market economies (EMEs) that borrow
externally. Most business loans and, in some countries, many residential mortgages have floating

Financial Stability Report

interest rates, implying that higher policy interest rates can quickly increase debt service requirements. Declines in property prices could strain the balance sheets of households and reduce
recoveries on nonperforming loans backed by residential real estate and CRE. Bank funding costs
are likely to increase as deposit rates continue to rise following earlier policy rate hikes and would
continue to do so with any additional policy firming. While deposit rates are likely to remain lower
than market interest rates, higher funding costs may pressure the profitability of banks with large
portfolios of fixed-rate assets that were acquired when interest rates were much lower.
A sharp rise in interest rates could also lead to increased volatility in global financial markets,
stresses to market liquidity, and a correction in asset prices. Liquidity pressures could subject
banks to outflows of deposits and other forms of short-term funding. Higher rates and liquidity
pressures could also lead to losses or liquidity strains for NBFIs that operate with high leverage
or provide maturity transformation. Stress in foreign economies could transmit to the U.S. through
disruptions in asset markets, reduced credit from foreign lenders to U.S. residents, and effects
arising from U.S. financial institutions’ interlinkages with foreign financial institutions, including
in U.S. dollar funding markets (see the box “Transmission of Stress Abroad to the U.S. Financial
System”). These interlinkages could further amplify stresses abroad.

A worsening of global geopolitical tensions could lead to commodity
price inflation and broad adverse spillovers
The ongoing war in Ukraine is weighing on many countries in a variety of ways. Escalation of the
war or a worsening in other geopolitical tensions could reduce economic activity and boost inflation worldwide. A resurgence in food and energy prices could, in turn, intensify stresses, especially
in EMEs. Increased debt levels in some EMEs make these economies more vulnerable to shocks,
potentially amplifying adverse effects. China continues to have very high levels of corporate
debt, especially in the property sector, and local government debt has been increasing recently.19 Stresses in China could spill over to other EMEs that rely on trade with China or credit from
Chinese entities. Given the importance of EMEs, particularly China, to world trade and activity,
stresses in EMEs could exacerbate adverse spillovers to global asset markets and economic activity, further affecting economic and financial conditions in the U.S.

See the box “Stresses in China’s Real Estate Sector” in Board of Governors of the Federal Reserve System (2022),
Financial Stability Report (Washington: Board of Governors, May), pp. 58–60, https://www.federalreserve.gov/
publications/files/financial-stability-report-20220509.pdf.

Near-Term Risks to the Financial System

Box 5.1. Survey of Salient Risks to Financial Stability
As part of its market intelligence gathering, staff from the Federal Reserve Bank of New York solicited
views from a wide range of contacts on risks to U .S . financial stability . From February to early April, the
staff surveyed 25 contacts, including professionals at broker-dealers, investment funds, research and
advisory organizations, and universities (figure A) . The potential for persistent inﬂationary pressures to
result in more restrictive monetary policy remained a top-cited risk, as it has been since the fall 2021
survey (figure B) . Following the closure of SVB on March 10, a large majority of respondents highlighted
the risk of additional banks coming under renewed stress . Many noted vulnerabilities in real estate markets, with some highlighting the potential for CRE exposures to trigger further banking sector concerns .
Respondents also continued to focus on geopolitical risks, especially the possibility of heightened tensions between the U .S . and China and a further escalation of Russia’s war in Ukraine . This discussion
summarizes the most cited risks from this round of outreach .

Persistent inflation and monetary tightening
Concern over persistent inﬂationary pressures driving a highly restrictive monetary policy stance, particularly in the U .S ., remained top of mind . Several contacts highlighted that labor and economic activity
data remained robust despite the rapid rise in policy rates, suggesting global central banks may need
to tighten further to fight inﬂation, risking a sharper economic slowdown and financial market instability .
Some contacts noted that central bank balance sheet reductions in the U .S . and abroad could strain
market functioning, particularly in sovereign bond markets .

Stress in the banking sector and nonbank financial institutions
Market participants highlighted the risk of stress in the banking sector, noting that higher funding
costs and depressed profitability may render some banks vulnerable to deposit runs . Many respondents noted heightened market scrutiny over deposit stability and declines in fair value of legacy longduration fixed-rate assets that could trigger further contagion and market volatility . Some contacts highlighted risks stemming from NBFIs in an environment of tightening monetary policy, such as that seen
in the U .K . in September 2022 .

Commercial real estate
Many contacts saw real estate as a possible trigger for systemic risk, particularly in the commercial
sector, where respondents highlighted concerns over higher interest rates, valuations, and shifts in
end-user demand . Some market participants associated risks in real estate with the emergence of
banking-sector stress, noting some bank exposures to underperforming CRE assets could prompt
instability .

Geopolitical risks
Many market participants cited a broad range of geopolitical risks, largely centered on the relationship between the U .S . and China . They noted rising tensions could cause a deterioration in trade and
financial ﬂows, with negative implications for global supply chains and investor sentiment . Some also
cited the risk of military or political conﬂict between China and Taiwan, and any subsequent potential
intervention by the U .S ., as a possible ﬂash point . Elsewhere, respondents highlighted the risk of an
escalation of Russia’s war in Ukraine as weighing on the economic outlook in Europe and driving higher
commodity prices, with some noting that further escalation could increase risks of cyberwarfare .

Debt limit
Respondents saw the potential for funding market disruptions and tighter financial conditions if the
statutory debt limit is not raised in a timely manner, while noting the adverse ramifications of a technical or outright default, including a sharp rise in Treasury yields, an increase in corporate financing
costs, and a deterioration in risk sentiment . Relatedly, some contacts noted the risk of higher government financing costs in an environment where monetary policy remains in restrictive territory for a protracted period .
(continued)

Financial Stability Report

Box 5.1—continued
Figure A. Spring 2023: Most cited potential risks over the next 12 to 18 months
Persistent inflation; monetary tightening
Banking-sector stress
U.S.–China tensions
Commercial and residential real estate
Russia–Ukraine war
Debt limit
Market liquidity strains and volatility
Under-regulated nonbanks
Fiscal debt sustainability

Percentage of respondents

0
10
20
30
40
50
Source: Federal Reserve Bank of New York survey of 25 market contacts from February to April .

Figure B. Fall 2022: Most cited potential risks over the next 12 to 18 months
Persistent inflation; monetary tightening
Russia–Ukraine war
Market liquidity strains and volatility
Higher energy prices
China–Taiwan conflict
Under-regulated nonbanks
Europe recession
Supply chain disruptions
Value of U.S. dollar
Emerging market economy risks

Percentage of respondents

0
10
20
30
40
50
Source: Federal Reserve Bank of New York survey of 26 market contacts from August to October .

Near-Term Risks to the Financial System

Box 5.2. Transmission of Stress Abroad to the U.S. Financial
System
The U .S . financial system plays a central role in the global financial system, making it susceptible to
spillovers from shocks abroad .1 This discussion describes four important transmission channels:
(1) U .S . dollar funding markets, (2) asset markets, (3) financial institution interconnectedness, and
(4) the U .S . real economy .
As illustrated in figure A, shocks may generate stress for foreign financial markets, internationally
active financial institutions, sovereigns, and international trade and commodity markets . This stress
may be transmitted to the U .S . financial system through the four channels noted earlier, resulting in
two types of spillovers: (1) disruptions to financial intermediation, which can reduce credit available
to U .S . households and businesses; and (2) increased risks of default and insolvency due to losses
on assets held by U .S . financial institutions . The strength of these spillovers largely depends on the
extent of cross-border linkages and how existing vulnerabilities in the U .S . financial system interact
with the foreign stress .

Figure A. Spillovers of foreign shocks to the U.S. financial system
Effects on
foreign entities
• Financial markets
• Financial institutions

Shocks

Transmission
channels
U.S. dollar funding markets
Asset markets

• Sovereigns
• International trade
and global commodity
markets

Interconnectedness

Spillovers to
U.S. financial system
• Disruptions to financial
intermediation
• Increased risk of
default and insolvency

U.S. real economy

U.S. dollar funding market channel
The U .S . dollar is the leading currency for global funding and investment—accounting for almost half
of outstanding cross-border bank credit and international debt securities—and is widely used for trade
and other international transactions .2 U .S . and foreign financial intermediaries engage in dollardenominated borrowing, lending, and investment activities within a complex and interconnected network of markets involving a broad set of financial instruments .3 Disruptions in foreign institutions’ ability to borrow U .S . dollars can transmit stress to the U .S . financial system in several ways, listed below .
(continued)

Shocks from abroad can be geopolitical, sovereign, financial, or related to the real economy or other factors . Examples of foreign
shocks include the war in Ukraine and the European sovereign debt crisis, as well as the COVID-19 pandemic, which was a
global shock .

See Bank for International Settlements (2022), BIS Statistics Explorer, Table A1-S: Summary of Locational Statistics, by Currency,
Instrument and Residence and Sector of Counterparty, https://stats .bis .org/statx/srs/table/a1?m=S (accessed March 29,
2023); and Bank for International Settlements (2022), BIS Debt Securities Statistics, Table: Outstanding Stock of International
Debt Securities by Currency of Denomination, https://www .bis .org/statistics/about_securities_stats .htm?m=6%7C33%7C638
(accessed March 29, 2023) .

The financial instruments used by foreign entities to obtain dollar funding include commercial paper, corporate and sovereign
bonds, bank deposits, interbank loans, credit lines, FX swaps, repos, and leveraged loans .

Financial Stability Report

Box 5.2—continued
Foreign institutions account for a significant share of borrowing in U .S . short-term wholesale funding
markets, making up around half of all borrowing done through repos, and issue more than two-thirds
of U .S . dollar-denominated commercial paper and negotiable certificates of deposit .4 Concerns about
the solvency or liquidity of foreign borrowers can induce sudden outﬂows from U .S .-based wholesale
lenders, such as prime MMFs, that may then be forced to cut short-term funding provided to a broader
set of borrowers that would have been otherwise unaffected by the foreign stress .5 This could, in turn,
reduce credit available for U .S . households and businesses .
Figure B. U.S. dollar-denominated bank
claims on U.S. and non-U.S. residents as of
2022:Q3
Trillions of dollars
U.S. banks
Foreign banks

25
20
15
10

Stress in U .S . dollar funding markets can also
limit the ability of foreign banks to provide U .S .
dollar-denominated credit to U .S . and foreign
borrowers . Foreign banks supply around onethird of total bank credit to U .S . residents, especially to C&I borrowers, and most of the U .S .
dollar-denominated lending to non-U .S . residents
(figure B) . U .S . branches and agencies of foreign
banks tend to rely on short-term U .S . dollar
wholesale funding, making their U .S . lending particularly sensitive to funding market disruptions .

Foreign banks are also important counterparties
in U .S . dollar-denominated FX swaps, which
many foreign NBFIs rely on as a source of U .S .
0
dollars . If foreign banks are unable to borrow
U.S. residents
Non-U.S. residents
U .S . dollars in FX swap markets, other foreign
Source: Bank for International Settlements,
financial institutions that use FX swaps will have
consolidated and locational banking statistics;
limited ability to invest in U .S . markets and to
Federal Reserve Board staff estimates .
lend to U .S . households and businesses and
could be forced to liquidate U .S . assets . U .S .
dollar liquidity swap line arrangements between
the Federal Reserve and foreign central banks have played a critical role in alleviating U .S . dollar funding stresses when liquidity in private markets, such as the FX swap market, has dried up .6
5

Asset market channel
Stress abroad can cause rapid declines in the prices of both foreign and U .S . assets . When losses on
equities and on other risk assets are severe and broad based, investors may respond by rebalancing
their portfolios to low-risk assets such as U .S . Treasury securities, potentially triggering a cycle of deteriorating prices for higher-risk assets, heightened volatility and reduced market liquidity, margin calls,
and forced asset sales . Spillovers to U .S . institutions may be amplified if substantial leverage is supporting stretched asset valuations .
(continued)

See the box “Vulnerabilities in Global U .S . Dollar Funding Markets” in Board of Governors of the Federal Reserve System (2021),
Financial Stability Report (Washington: Board of Governors, May), pp . 55–58, https://www .federalreserve .gov/publications/files/
financial-stability-report-20210506 .pdf .

Just over half of all assets held by prime MMFs are claims on foreign entities as of January 31, 2023 . See Board of Governors of
the Federal Reserve System (2023), Money Market Funds: Investment Holdings Detail, Table 2: U .S . Money Market Fund Investment Holdings by Country of Issuance, Fund Type, Instrument, and Maturity, webpage, March 24, https://www .federalreserve .gov/
releases/efa/efa-project-money-market-funds-investment-holdings-detail .htm .

For a discussion of swap line use at the onset of the COVID-19 pandemic, see the box “Federal Reserve Tools to Lessen
Strains in Global Dollar Funding Markets” in Board of Governors of the Federal Reserve System (2020), Financial Stability
Report (Washington: Board of Governors, May), pp . 16–18, https://www .federalreserve .gov/publications/files/financial-stabilityreport-20200515 .pdf .

Near-Term Risks to the Financial System

Box 5.2—continued
U .S . Treasury securities are a unique type of asset critical to the functioning of the global financial system . Foreign holdings of U .S . Treasury securities totaled about $7 trillion as of December 31, 2022, or
about 30 percent of outstanding marketable U .S . Treasury securities, with holdings split nearly equally
between the foreign official—mostly central banks and sovereign wealth funds—and foreign private
sectors . At the onset of the COVID-19 pandemic, foreign investors sought to sell U .S . Treasury securities because of an unprecedented surge in the demand for cash—in sharp contrast to typical market
dynamics in previous periods of severe global financial stress—amplifying pressures on U .S . Treasury
markets that resulted in significant dislocations and strained market functioning .7 The FIMA (Foreign
and International Monetary Authorities) Repo Facility broadens the reach of the Federal Reserve’s provision of U .S . dollar liquidity overseas beyond its dollar swap lines . By reducing the incentive of foreign
official investors to sell U .S . Treasury securities into stressed markets, the facility contributed to the
stabilization of the U .S . Treasury market in the spring of 2020 .8

Financial institution interconnectedness channel
Many U .S . financial institutions have client and counterparty relationships with foreign financial institutions, exposing them to losses from defaults and credit impairments on the one hand, and to loss of
access to credit and important financial services on the other hand .9 Moreover, a loss of confidence in
a group of large foreign financial institutions could spread to large U .S . financial institutions, resulting
in higher funding costs and the risk of broad-based pullbacks by depositors and other funding providers . This type of “contagion” is most likely to spread to U .S . institutions that have exposures to distressed foreign institutions or are considered to have similar business models . Regulatory changes following the 2007–09 financial crisis have markedly increased U .S . banks’ capital and liquidity positions,
providing additional resilience to various types of losses and reducing the likelihood of contagion .

U.S. real economy channel
Global economic shocks can trigger recessions abroad as well as commodity and trade market disruptions, which tend to transmit quickly through the asset market channel, as discussed earlier .10
However, any effects on U .S . real economic activity—such as higher goods prices, unemployment, and
reduced consumer demand and business investment—generally take longer to materialize and are
unlikely to cause U .S . borrowers to default at a rate that would generate significant losses across the
U .S . financial system .

See the box “The Role of Foreign Investors in the March 2020 Turmoil in the U .S . Treasury Market” in Board of Governors of the
Federal Reserve System (2021), Financial Stability Report, (Washington: Board of Governors, November), pp . 22–25, https://www .
federalreserve .gov/publications/files/financial-stability-report-20211108 .pdf .

A temporary facility was created in March 2020 and was made a standing facility in 2021 . For additional details, see Mark Choi,
Linda Goldberg, Robert Lerman, and Fabiola Ravazzolo (2022), “The Fed’s Central Bank Swap Lines and FIMA Repo Facility,”
Federal Reserve Bank of New York, Economic Policy Review, vol . 28 (June), pp . 93–113, https://www .newyorkfed .org/
medialibrary/media/research/epr/2022/epr_2022_fima-repo_choi .pdf .

As of September 30, 2022, U .S . banks had claims on foreign banks and foreign NBFIs totaling $530 billion and $1 .6 trillion,
respectively, as well as an additional $373 billion in claims on foreign sectors through derivative contracts; see Bank for
International Settlements (2023), BIS Statistics Explorer, Table B3-S: Summary of Foreign Claims and Other Potential Exposures
(Guarantor Basis), by Nationality of Reporting Bank, https://stats .bis .org/statx/srs/table/b3?m=S&f=pdf (accessed March 29,
2023) . U .S . corporations and financial institutions may also receive important financial services—directly or indirectly—from
foreign banks, including investment banking, derivatives dealing, and market making, as well as securities clearing and other
financial market infrastructure access .

Foreign shocks can also create economic uncertainty, which has been shown to transmit across countries . See Juan M .
Londono, Sai Ma, and Beth Anne Wilson (2021), “The Global Transmission of Real Economic Uncertainty,” International Finance
Discussion Papers 1317 (Washington: Board of Governors of the Federal Reserve System, April), https://doi .org/10 .17016/
IFDP .2021 .1317 .

Appendix

Figure Notes

Figure 1.1. Nominal Treasury yields fell in March and April
The 2-year and 10-year Treasury rates are the monthly average of the constant-maturity yields
based on the most actively traded securities.
Figure 1.2. An estimate of the nominal Treasury term premium remained low
Term premiums are estimated from a 3-factor term structure model using Treasury yields and Blue
Chip interest rate forecasts.
Figure 1.3. Interest rate volatility remained above its long-term median
The data begin in April 2005. Implied volatility on the 10-year swap rate, 1 month ahead, is
derived from swaptions. The median value is 78.93 basis points.
Figure 1.4. The price-to-earnings ratio of S&P 500 firms continued to be above its historical median
The figure shows the aggregate forward price-to-earnings ratio of S&P 500 firms, based on
expected earnings for 12 months ahead. The median value is 15.5.
Figure 1.5. An estimate of the equity premium fell below its historical median
The figure shows the difference between the aggregate forward earnings-to-price ratio of S&P 500
firms and the expected real Treasury yields, based on expected earnings for 12 months ahead.
Expected real Treasury yields are calculated from the 10-year consumer price index inflation forecast, and the smoothed nominal yield curve is estimated from off-the-run securities. The median
value is 4.78 percentage points.
Figure 1.6. Volatility in equity markets remained elevated
Realized volatility is computed from an exponentially weighted moving average of 5-minute daily
realized variances with 75 percent of weight distributed over the past 20 business days.
Figure 1.7. Treasury market depth remained below historical norms
Market depth is defined as the average top 3 bid and ask quote sizes for on-the-run Treasury
securities.
Figure 1.8. On-the-run market depth worsened in March then recovered
The data show the time-weighted average market depth at the best quoted prices to buy and sell,
for 2-year and 10-year Treasury notes. OTR is on-the-run.
Figure 1.9. A measure of liquidity in equity markets fell sharply in March
The data show the depth at the best quoted prices to buy and sell, defined as the ask size plus
the bid size divided by 2, for E-mini S&P 500 futures.
Figure 1.10. Corporate bond yields fell to near their historical averages
The triple-B series reflects the effective yield of the ICE Bank of America Merrill Lynch (BofAML)
triple-B U.S. Corporate Index (C0A4), and the high-yield series reflects the effective yield of the ICE
BofAML U.S. High Yield Index (H0A0).

Financial Stability Report

Figure 1.11. Spreads to similar-maturity Treasury securities edged down
The triple-B series reflects the option-adjusted spread of the ICE Bank of America Merrill Lynch
(BofAML) triple-B U.S. Corporate Index (C0A4), and the high-yield series reflects the optionadjusted spread of the ICE BofAML U.S. High Yield Index (H0A0).
Figure 1.12. The excess bond premium stayed near its historical average
The data begin in January 1997. The excess bond premium (EBP) is a measure of bond market
investors’ risk sentiment. It is derived as the residual of a regression that models corporate
bond spreads after controlling for expected default losses. By construction, its historical mean
is zero. Positive (negative) EBP values indicate that investors’ risk appetite is below (above) its
historical mean.
Figure 1.13. Spreads in the leveraged loan market fell modestly
The data show secondary-market discounted spreads to maturity. Spreads are the constant
spread used to equate discounted loan cash flows to the current market price. B-rated spreads
begin in July 1997. The line break represents the data transitioning from monthly to weekly in
November 2013.
Figure 1.14. Commercial real estate prices, adjusted for inflation, declined
The data are deflated using the consumer price index and are seasonally adjusted by Federal
Reserve Board staff.
Figure 1.15. Income of commercial properties relative to prices turned up but remained near historically low levels
The data are a 12-month moving average of weighted capitalization rates in the industrial, retail,
office, and multifamily sectors, based on national square footage in 2009.
Figure 1.16. Banks reported tightening lending standards in commercial real estate loans
Banks’ responses are weighted by their commercial real estate loan market shares. The
shaded bars with top caps indicate periods of business recession as defined by the National
Bureau of Economic Research: March 2001–November 2001, December 2007–June 2009, and
February 2020–April 2020. Survey respondents to the Senior Loan Officer Opinion Survey on Bank
Lending Practices are asked about the changes over the quarter.
Figure 1.17. Farmland prices reached near historical highs
The data for the U.S. begin in 1997. Midwest index is a weighted average of Corn Belt and Great
Plains states derived from staff calculations. Values are given in real terms. The data are annual
as of July. The median value is $3,308.32.
Figure 1.18. Farmland prices grew faster than rents
The data for the U.S. begin in 1998. Midwest index is a weighted average of Corn Belt and
Great Plains states derived from staff calculations. The data are annual as of July. The median
value is 18.1.

Figure Notes

Figure 1.19. House price growth decelerated sharply
The Zillow and CoreLogic data extend through February 2023, and the Case-Shiller data extend
through January 2023.
Figure 1.20. Model-based measures of house price valuations remained historically high
The owners’ equivalent rent value for 2023:Q1 is based on monthly data through February 2023.
The data for the market-based rents model begin in 2004:Q1 and extend through 2023:Q1. The
value for 2023:Q1 is based on monthly data through January 2023. Valuation is measured as
the deviation from the long-run relationship between the price-to-rent ratio and the real 10-year
Treasury yield.
Figure 1.21. House price-to-rent ratios remained elevated across geographic areas
The data are seasonally adjusted. Percentiles are based on 19 large metropolitan statistical areas.
Figure 2.1. The total debt of households and businesses relative to GDP declined further
The shaded bars with top caps indicate periods of business recession as defined by the National
Bureau of Economic Research: January 1980–July 1980, July 1981–November 1982, July 1990–
March 1991, March 2001–November 2001, December 2007–June 2009, and February 2020–
April 2020. GDP is gross domestic product.
Figure 2.2. Both business and household debt-to-GDP ratios edged down
The shaded bars with top caps indicate periods of business recession as defined by the National
Bureau of E
conomic Research: January 1980–July 1980, July 1981–November 1982, July 1990–
March 1991, March 2001–November 2001, December 2007–June 2009, and February 2020–
April 2020. GDP is gross domestic product.
Figure 2.3. Business debt adjusted for inflation declined modestly
Nominal debt growth is seasonally adjusted and is translated into real terms after subtracting the
growth rate of the price deflator for the core personal consumption expenditures price index.
Figure 2.4. Net issuance of risky debt remained subdued
The data begin in 2004:Q2. Institutional leveraged loans generally exclude loan commitments held
by banks. The key identifies bars in order from top to bottom (except for some bars with at least
one negative value).
Figure 2.5. Gross leverage of large businesses remained at high levels
Gross leverage is an asset-weighted average of the ratio of firms’ book value of total debt to book
value of total assets. The 75th percentile is calculated from a sample of the 2,500 largest firms
by assets. The dashed sections of the lines in the first quarter of 2019 reflect the structural break
in the series due to the 2019 compliance deadline for Financial Accounting Standards Board rule
Accounting Standards Update 2016-02. The accounting standard requires operating leases, previously considered off-balance-sheet activities, to be included in measures of debt and assets.

Financial Stability Report

Figure 2.6. Firms’ ability to service their debt, as measured by the interest coverage ratio,
was strong
The interest coverage ratio is earnings before interest and taxes divided by interest payments.
Firms with leverage less than 5 percent and interest payments less than $500,000 are excluded.
Figure 2.7. Default rates on leveraged loans inched up from historically low levels
The data begin in December 1998. The default rate is calculated as the amount in default over
the past 12 months divided by the total outstanding volume at the beginning of the 12-month
period. The shaded bars with top caps indicate periods of business recession as defined by
the National Bureau of Economic Research: March 2001–November 2001, December 2007–
June 2009, and February 2020–April 2020.
Figure 2.8. The majority of new leveraged loans last year have debt multiples greater than 5
Volumes are for large corporations with earnings before interest, taxes, depreciation, and amortization (EBITDA) greater than $50 million and exclude existing tranches of add-ons and amendments
as well as restatements with no new money. The key identifies bars in order from top to bottom.
Figure 2.9. Real household debt edged up
Subprime are those with an Equifax Risk Score below 620; near prime are from 620 to 719; prime
are greater than 719. Scores are measured contemporaneously. Student loan balances before
2004 are estimated using average growth from 2004 to 2007, by risk score. The data are converted to constant 2022 dollars using the consumer price index.
Figure 2.10. A model-based estimate of housing leverage was flat
Housing leverage is estimated as the ratio of the average outstanding mortgage loan balance for
owner-occupied homes with a mortgage to (1) current home values using the Zillow national house
price index and (2) model-implied house prices estimated by a staff model based on rents, interest rates, and a time trend.
Figure 2.11. Mortgage delinquency rates remained at historically low levels
Loss mitigation includes tradelines that have a narrative code of forbearance, natural disaster,
payment deferral (including partial), loan modification (including federal government plans), or
loans with no scheduled payment and a nonzero balance. Delinquent includes loans reported to
the credit bureau as at least 30 days past due.
Figure 2.13. New mortgage extensions to nonprime borrowers have been subdued
Year-over-year change in balances for the second quarter of each year among those households
whose balance increased over this window. Subprime are those with an Equifax Risk Score below
620; near prime are from 620 to 719; prime are greater than 719. Scores were measured 1 year
ago. The data are converted to constant 2022 dollars using the consumer price index. The key
identifies bars in order from left to right.
Figure 2.14. Real consumer credit edged up in the second half of 2022
The data are converted to constant 2022 dollars using the consumer price index. Student loan
data begin in 2005.

Figure Notes

Figure 2.15. Real auto loans outstanding ticked up
Subprime are those with an Equifax Risk Score below 620; near prime are from 620 to 719; prime
are greater than 719. Scores are measured contemporaneously. The data are converted to constant 2022 dollars using the consumer price index.
Figure 2.16. Auto loan delinquencies moved up in 2022 but still remained at modest levels
Loss mitigation includes tradelines that have a narrative code of forbearance, natural disaster, payment deferral (including partial), loan modification (including federal government plans), or loans
with no scheduled payment and a nonzero balance. Delinquent includes loans reported to the
credit bureau as at least 30 days past due. The data for auto loans are reported semiannually by
the Risk Assessment, Data Analysis, and Research Data Warehouse until 2017, after which they
are reported quarterly. The data for delinquent/loss mitigation begin in the first quarter of 2001.
Figure 2.17. Real credit card balances have increased in 2022, partially reversing earlier declines
Subprime are those with an Equifax Risk Score below 620; near prime are from 620 to 719; prime
are greater than 719. Scores are measured contemporaneously. The data are converted to constant 2022 dollars using the consumer price index.
Figure 2.18. Credit card delinquencies increased but remained at low levels
Delinquency measures the fraction of balances that are at least 30 days past due, excluding
severe derogatory loans.The data are seasonally adjusted.
Figure 3.1. Banks’ average interest rate on interest-earning assets and average expense rate on
liabilities increased
Average interest rate on interest-earning assets is total interest income divided by total
interest-earning assets. Average interest expense rate on liabilities is total interest expense
divided by total liabilities. The data for average interest expense rate begin in 2014:Q2. The
shaded bar with a top cap indicates a period of business recession as defined by the National
Bureau of Economic Research: February 2020–April 2020.
Figure 3.2. The fair values of banks’ securities portfolios declined in 2022 as interest rates rose
The figure plots the difference between the fair and amortized cost values of the securities. Sample consists of all bank holding companies and commercial banks.
Figure 3.3. Banks’ risk-based capital ratio remained near the median level since the 2007–09
financial crisis
The data are seasonally adjusted by Federal Reserve Board staff. Sample consists of domestic
bank holding companies (BHCs) and intermediate holding companies (IHCs) with a substantial U.S. commercial banking presence. G-SIBs are global systemically important banks. Large
non–G-SIBs are BHCs and IHCs with greater than $100 billion in total assets that are not G-SIBs.
Before 2014:Q1 (advanced-approaches BHCs) or before 2015:Q1 (non-advanced-approaches
BHCs), the numerator of the common equity Tier 1 ratio is Tier 1 common capital. Afterward,
the numerator is common equity Tier 1 capital. The denominator is risk-weighted assets. The
shaded bars with top caps indicate periods of business recession as defined by the National

Financial Stability Report

Bureau of Economic Research: March 2001–November 2001, December 2007–June 2009, and
February 2020–April 2020.
Figure 3.4. The ratio of tangible common equity to tangible assets increased for global systemically important banks but decreased for other banks
The data are seasonally adjusted by Federal Reserve Board staff. Sample consists of domestic
bank holding companies (BHCs), intermediate holding companies (IHCs) with a substantial U.S.
commercial banking presence, and commercial banks. G-SIBs are global systemically important
banks. Large non–G-SIBs are BHCs and IHCs with greater than $100 billion in total assets that
are not G-SIBs. Bank equity is total equity capital net of preferred equity and intangible assets.
Bank assets are total assets net of intangible assets. The shaded bars with top caps
indicate periods of business recession as defined by the National Bureau of Economic Research:
July 1990–March 1991, March 2001–November 2001, December 2007–June 2009, and
February 2020–April 2020.
Figure 3.5. Borrower leverage for bank commercial and industrial loans continued to decrease
The figure shows the weighted median leverage of nonfinancial firms that borrow using commercial
and industrial loans from the 24 banks that have filed in every quarter since 2013:Q1. Leverage
is measured as the ratio of the book value of total debt to the book value of total assets of the
borrower, as reported by the lender, and the median is weighted by committed amounts.
Figure 3.6. Lending standards for bank commercial and industrial loans have tightened
Banks’ responses are weighted by their commercial and industrial loan market shares. Survey
respondents to the Senior Loan Officer Opinion Survey on Bank Lending Practices are asked about
the changes over the quarter. Results are shown for loans to large and medium-sized firms. The
shaded bars with top caps indicate periods of business recession as defined by the National
Bureau of Economic Research: March 2001–November 2001, December 2007–June 2009, and
February 2020–April 2020.
Figure 3.7. Leverage at broker-dealers remained historically low
Leverage is calculated by dividing total assets by equity.
Figure 3.8. Trading profits decreased in 2022:Q4, consistent with seasonal patterns
Sample includes all trading desks of bank holding companies subject to the Volcker rule reporting
requirement.
Figure 3.9. Shares of trading profits by trading desks
Sample includes all trading desks of bank holding companies subject to the Volcker rule reporting requirement. The “other” category comprises desks trading in municipal securities, foreign
exchange, and commodities, as well as any unclassified desks. The key identifies series in order
from top to bottom.

Figure Notes

Figure 3.10. Leverage at life insurance companies edged up but remained below its
pandemic peak
Ratio is calculated as (total assets – separate account assets)/(total capital – accumulated other
comprehensive income) using generally accepted accounting principles. The largest 10 publicly
traded life and property and casualty insurers are represented.
Figure 3.11. Leverage at hedge funds remained elevated
Leverage is computed as the ratio of hedge funds’ gross notional exposure to net asset value.
Gross notional exposure includes the nominal value of all long and short positions and both
on-balance-sheet and off-balance-sheet derivative notional exposures. Options are delta adjusted,
and interest rate derivatives are reported at 10-year bond equivalents. The mean is weighted by
net asset value. The data are reported on a 2-quarter lag beginning in the first quarter of 2013.
Figure 3.12. Leverage at the largest hedge funds decreased but remained high
Leverage is measured by gross asset value (GAV) divided by net asset value (NAV). Funds are
sorted into cohorts based on GAV. Average leverage is computed as the NAV-weighted mean.
Figure 3.13. Dealers indicated that the use of leverage by hedge funds was unchanged recently
Net percentage equals the percentage of institutions that reported increased use of financial
leverage over the past 3 months minus the percentage of institutions that reported decreased use
of financial leverage over the past 3 months. REIT is real estate investment trust.
Figure 3.14. Issuance of non-agency securitized products has slowed significantly since 2021
The data from the first quarter of 2023 are annualized to create the 2023 bar. CMBS is commercial mortgage-backed securities; CDO is collateralized debt obligation; RMBS is residential
mortgage-backed securities; CLO is collateralized loan obligation. The “other” category consists
of other asset-backed securities (ABS) backed by credit card debt, student loans, equipment, floor
plans, and miscellaneous receivables; resecuritized real estate mortgage investment conduit
(Re-REMIC) RMBS; and Re-REMIC CMBS. The data are converted to constant 2023 dollars using
the consumer price index. The key identifies bars in order from top to bottom.
Figure 3.15. Bank credit commitments to nonbank financial institutions remained high
Committed amounts on credit lines and term loans extended to nonbank financial institutions by
a balanced panel of 24 bank holding companies that have filed Form FR Y-14Q in every quarter
since 2018:Q1. Nonbank financial institutions are identified based on reported North American
Industry Classification System (NAICS) codes. In addition to NAICS codes, a name-matching
algorithm is applied to identify specific entities such as real estate investment trusts (REITs),
special purpose entities, collateralized loan obligations (CLOs), and asset-backed securities (ABS).
BDC is business development company. REITs incorporate both mortgage (trading) REITs and
equity REITs. Broker-dealers also include commodity contracts dealers and brokerages and other
securities and commodity exchanges. Other financial vehicles include closed-end investment and
mutual funds.

Financial Stability Report

Figure 3.16. Aggregate loan commitments and utilization rates of nonbank financial institutions
increased during 2022 but varied across sectors
2022:Q4-over-2021:Q4 growth rates as of the end of the fourth quarter of 2022. REIT is real
estate investment trust; PE is private equity; BDC is business development company; SPE is special purpose entity; CLO is collateralized loan obligation; ABS is asset-backed securities. The key
identifies bars in order from left to right.
Box 3.1. The Bank Stresses since March 2023
Figure A. Bank stock prices and stock indexes
Stock prices are not reported on or after the day of bank failure.
Figure B. Peak 1-day withdrawal rates for runs on the largest banks, by inflation-adjusted
total assets
Banks are sorted by inflation-adjusted total assets from left to right.
Box 3.2. Financial Stability Risks from Private Credit Funds Appear Limited
Figure A. Private credit fund assets and dry powder
Dry powder is estimated by subtracting balance sheet assets from regulatory assets under management, which include uncalled capital commitments.
Figure B. Shares of private credit fund assets held by different investors
The data are as of 2021:Q4. The “other” category consists of banks, broker-dealers, registered
investment companies, government entities (excluding pensions), non-U.S. investors of unknown
type, and a residual category that is responsible for most of the reported assets.
Figure 4.1. Ratios of runnable money-like liabilities to GDP edged down but remained above their
historical medians
The black striped area denotes the period from 2008:Q4 to 2012:Q4, when insured deposits
increased because of the Transaction Account Guarantee program. The “other” category consists
of variable-rate demand obligations (VRDOs), federal funds, funding-agreement-backed securities,
private liquidity funds, offshore money market funds, short-term investment funds, local government investment pools, and stablecoins. Securities lending includes only lending collateralized
by cash. GDP is gross domestic product. Values for VRDOs come from Bloomberg beginning
in 2019:Q1. See Jack Bao, Josh David, and Song Han (2015), “The Runnables,” FEDS Notes
(Washington: Board of Governors of the Federal Reserve System, September 3), https://www.
federalreserve.gov/econresdata/notes/feds-notes/2015/the-runnables-20150903.html.
Figure 4.2. The amount of high-quality liquid assets held by banks decreased in 2022
Sample consists of domestic bank holding companies (BHCs) and intermediate holding companies (IHCs) with a substantial U.S. commercial banking presence. G-SIBs are global systemically
important banks. Large non–G-SIBs are BHCs and IHCs with greater than $100 billion in total
assets that are not G-SIBs. Liquid assets are cash plus estimates of securities that qualify

Figure Notes

as high-quality liquid assets as defined by the Liquidity Coverage Ratio requirement. Accordingly, Level 1 assets and discounts and restrictions on Level 2 assets are incorporated into the
estimate.
Figure 4.3. Banks’ reliance on short-term wholesale funding remained low
Short-term wholesale funding is defined as the sum of large time deposits with maturity less than
1 year, federal funds purchased and securities sold under agreements to repurchase, deposits
in foreign offices with maturity less than 1 year, trading liabilities (excluding revaluation losses
on derivatives), and other borrowed money with maturity less than 1 year. The shaded bars with
top caps indicate periods of business recession as defined by the National Bureau of Economic
Research: March 2001–November 2001, December 2007–June 2009, and February 2020–
April 2020.
Figure 4.4. Growth in money market funds was concentrated in retail prime funds
The data are converted to constant 2023 dollars using the consumer price index.
Figure 4.5. Corporate bonds held by bond mutual funds fell sharply
The data show holdings of all U.S. corporate bonds by all U.S.-domiciled mutual funds (holdings of
foreign bonds are excluded). The data are converted to constant 2022 dollars using the consumer
price index.
Figure 4.6. Assets held by high-yield and bank loan mutual funds decreased
The data are converted to constant 2023 dollars using the consumer price index. The key identifies series in order from top to bottom.
Figure 4.7. Bond and bank loan mutual funds experienced notable outflows during most of the
past year
Mutual fund assets under management as of February 2023 included $2,173 billion in
investment-grade bond mutual funds, $227 billion in high-yield bond mutual funds, and $87 billion
in bank loan mutual funds. Bank loan mutual funds, also known as floating-rate bond funds, are
excluded from high-yield bond mutual funds.
Figure 4.8. Life insurers held more risky, illiquid assets on their balance sheets
Securitized products include collateralized loan obligations for corporate debt, private-label commercial mortgage-backed securities for commercial real estate (CRE), and private-label residential
mortgage-backed securities and asset-backed securities (ABS) backed by autos, credit cards,
consumer loans, and student loans for other ABS. Illiquid corporate debt includes private placements, bank and syndicated loans, and high-yield bonds. Alternative investments include assets
filed under Schedule BA. P&C is property and casualty. The key identifies bars in order from top
to bottom.

Financial Stability Report

Figure 4.9. Life insurers continued to rely on nontraditional liabilities
The data are converted to constant 2022 dollars using the consumer price index. FHLB is Federal
Home Loan Bank. The data are annual from 2006 to 2010 and quarterly thereafter. The key identifies bars in order from top to bottom.
Box 5.1. Survey of Salient Risks to Financial Stability
Figure A. Spring 2023: Most cited potential risks over the next 12 to 18 months
Responses are to the following question: “Over the next 12–18 months, which shocks, if realized, do you think would have the greatest negative effect on the functioning of the U.S. financial
system?”
Figure B. Fall 2022: Most cited potential risks over the next 12 to 18 months
Responses are to the following question: “Over the next 12–18 months, which shocks, if realized, do you think would have the greatest negative effect on the functioning of the U.S. financial
system?”
Box 5.2. Transmission of Stress Abroad to the U.S. Financial System
Figure B. U.S. dollar-denominated bank claims on U.S. and non-U.S. residents as of 2022:Q3
The data exclude intragroup claims.

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Full text of Financial Stability Report : May 2023

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