Financial Stability Report November 2024
Central bank: fed | Document type: financial_stability_report | Date: 2024-11-22

Financial Stability Report
November 2024
BOARD OF GO VERNORS OF THE FEDERAL RESER VE SYST EM
Note: This report generally reflects information that was available as of November 4, 2024.
Purpose and Framework ................................................. v
Corrections ............................................................ ix
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1 A sset Valuations  ..................................................... 5
2 B orrowing by Businesses and Households  .............................. 15
3 L everage in the Financial Sector  ....................................... 25
4 F unding Risks  ....................................................... 37
5 Ne ar-Term Risks to the Financial System  ............................... 45
urvey of Salient
sks to Financial Stability  ........................... 47
Appendix: Figure Notes ................................................. 49
This report presents the Federal re serve bo ard’s current assessment of the stability of the U.S.
financial system.
ublishing this report, the
ard intends to promote public understand-
ing by increasing transparency around, and creating accountability for, the Federal
views on this topic. Financial stability supports the objectives assigned to the Federal
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,
and businesses with the financing they need
to invest, grow, and participate in a well-
unctioning economy—and can do so even
when hit by adverse events, or “shocks.”
Consistent with this view of financial stabil-
ity, the Federal
ard’s monitoring
framework distinguishes between shocks to,
and vulnerabilities of, the financial system.
Shocks are inherently difficult to predict,
while 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 emphasis on four broad categories
and how those categories might interact to
amplify stress in the financial system.
1 F or a review of the research literature in this area, see Tobias Adrian, Daniel Covitz, and Nellie Liang (2015), “Finan-
cial Stability Monitoring,” Annual Review of Financial Economics , vol. 7 (December), pp. 357–95.
1. V aluation 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
luations).
Purpose and Framework
More on the Federal
Reserve’s Monitoring Efforts
See the Financial Stability section  of the
ard’s website for more
information on how the Federal
monitors the stability of the U.S. and world
financial systems.
The website includes:
ore detailed look at our monitoring
framework for assessing risk in each
ore data and research on related topics;
nformation on how we coordinate, cooper-
ate, and otherwise take action on financial
system issues; and
ublic education resources describing the
importance of our efforts.
vi F inancial Stability rep ort
2. E xcessive 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,
rrowing by
inesses and Households).
xcessive 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).
unding 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
The Federal reserve’s monitoring framework also tracks domestic and international develop-
ments 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, academ-
ics, 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.
P urpose and Framework  v ii
Federal Reserve actions to promote the resilience of the
financial system
The assessment of financial vulnerabilities informs Federal re serve actions to promote the resil-
ience of the financial system. The Federal
serve works with other domestic agencies directly
and through the Financial Stability Oversight Council 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
serve 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 inno-
vative stress-testing regime, and new liquidity regulations applied to the largest banks in the
United States. In addition, the Federal
serve’s assessment of financial vulnerabilities informs
decisions regarding the countercyclical capital buffer (CCy b)
. 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.
Corrections
On November 29, 2024, the label colors in figure 3.11 were corrected to show the top label
corresponding to “Mean gross leverage” and the bottom label to “Mean balance sheet leverage.”
This report reviews vulnerabilities affecting the stability of the U.S. financial system 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.
A summary of the developments in the four broad categories of vulnerabilities since the
April 2024 Financial Stability Report is as follows:
Overview of financial system vulnerabilities
Leverage in the
ﬁnancial sector Funding risks
Borrowing by businesses
and householdsAsset valuations
• Valuatio n pres sures
remained elevated  in
a range of markets,
including those for
equity, corporate debt ,
and res iden tial
real estate .
Liquidity in ﬁnancial
markets was gener ally
low and can become
stra ined during periods
of volat ility.
• Transaction-bas ed
prices for commercial
proper ties changed
little but fundamentals
deteriorated across
multiple sect ors.
• Vulnerabilities
from busine ss and
household debt
remained moderate.
• Busine ss leverage
remained elevated  by
historical standards.
• Household debt was at
modest levels relative
to gross domestic
product and mostly
owed by prime-rated
borrowers.
• Auto and credit  card
loan delinquenci es
remained above
pre-pandemic  levels ,
in part reﬂecting
extensi on of credit  to
riskier borrowers.
• The banking system
remained sound
and resilient, with
regulatory capital
ratios approaching
or exceeding
historical highs.
• Banks’ market-adjusted
capital levels improved
modestly, on net,
and remain sensitive
to changes in
interest rates.
• Broker-dealer leverage
continued to be low.
• Hedge fund leverage
was at or near the
highest level
since 2013.
• Most domestic banks
maintained high levels
of liquid assets and
stable funding.
• Uninsured deposits
have decreased, but
some banks have
increased brokered
and reciprocal deposits
or short-term wholesale
• Reforms implemented
by the Securities and
Exchange Commission
have mitigated some
vulnerabilities arising
stitut ional
prime money market
funds, but other
short-term investment
vehicles with structural
vulnerabilities
continued to grow.
• Nontraditional
liabilities
insurers continued to
be higher than average.
2 F inancial Stability re port
1. A sset valuations. va luation pressures remained elevated. The ratio of equity prices to
earnings moved up toward the high end of its historical range, and an estimate of the equity
premium—the compensation for risk in equity markets—remained well below average.
Spreads between yields on corporate bonds and those on comparable-maturity Treasury
securities were low compared to their history. Liquidity across many financial markets
remained low, contributing to volatility during periods of high uncertainty. In U.S. property
markets, home prices rose further, and the ratio of house prices to rents was near the highest
levels on record. Transaction-based price indexes (adjusted for inflation) for commercial real
) properties were little changed, while rent growth slowed and vacancy rates rose
(see Section 1, Asset
luations).
orrowing by businesses and households.
lnerabilities from business and household
debt remained moderate. Total debt of households and businesses as a fraction of gross
domestic product (GDP) continued to trend down to a level that is very low relative to the past
two decades. Household debt relative to GDP is especially subdued relative to recent history,
and most household debt is owed by prime-rated borrowers who are well positioned to meet
their payment obligations. That said, delinquency rates on credit cards and auto loans among
borrowers with nonprime credit ratings are above pre-pandemic levels. Indicators of business
leverage remained elevated relative to historical levels, and private credit arrangements have
been growing rapidly. Nonetheless, measures of the ability of businesses to service their
debt have been stable within typical ranges, in part reflecting robust corporate earnings (see
Section 2,
rrowing by
inesses and Households).
everage in the financial sector.
lnerabilities associated with financial leverage remained
notable. The banking sector remained sound and resilient overall, and most banks continued
to report capital levels well above regulatory requirements. Fair value losses on fixed-rate
assets were still sizable for some banks and remained sensitive to changes in interest rates.
Further, some banks, insurers, and securitization vehicles continued to have concentrated
exposures to C
. Indicators suggest that hedge fund leverage was at or near the highest
level in the past decade.
oker-dealer leverage stayed near historical lows (see Section 3,
Leverage in the Financial Sector).
unding risks. Funding risks have decreased some but overall remained notable. Liquidity at
most domestic banks remained sound. Many banks have significantly reduced the fraction of
assets funded with uninsured deposits, but use of short-term wholesale funding and brokered
and reciprocal deposits has increased. The U.S. Securities and Exchange Commission (SEC)
implemented reforms that reduced structural vulnerabilities among institutional prime and
tax-exempt funds. However, other types of money funds and alternatives to money funds with
similar vulnerabilities have grown and bond and loan funds that hold assets that can become
illiquid during periods of stress remained susceptible to large redemptions. In addition, life
insurers continued to rely on a higher-than-average share of nontraditional liabilities (see
Section 4, Funding
Overview 3
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, academ -
ics, and market contacts conducted from late August through late October (discussed in the box
“Survey of Salient
sks to Financial Stability”). In the fall survey, there were declines relative to
spring in the share of respondents citing persistent inflation pressures and monetary tightening
or generalized policy uncertainty as among the most notable risks to financial stability. At the
same time, there were sizable increases in the share of respondents who noted among their top
risks to financial stability fiscal debt sustainability, Middle East tensions, or a U.S. recession.
Survey of salient risks to the financial system
Survey respondents cited several emerging and existing events or conditions as presenting risks to the U.S. financial
system and the broader global economy. For more information, see the box “Survey of Salient
sks to Financial
Stability.”
of contacts
of contacts
Persistent  inﬂation /uni003B
monetary tightening
of contacts
Fiscal debt
sustainabili ty
of contacts
of contacts
of contacts
Middle East
of contacts
of contacts
uncertainty
of contacts
U.S. recession
of contacts
Asset Valuations1
Asset valuations remained elevated relative to fundamentals
Since the April report, valuations continued to rise in U.S. equity markets from already high levels
and remained stretched in corporate debt markets. Across equity and some debt markets, liquid-
ity remained low, which can amplify the impact of shocks on financial asset valuations. Indeed,
there is some evidence that investors seeking to exit a trading strategy known as the yen-carry
trade contributed to a temporary spike in market volatility at the start of August. The yen-carry
trade is a leveraged trade relying on a large amount of borrowing in Japanese yen. Investors then
use the borrowed funds to invest in other currencies to take advantage of interest rate differen-
tials. Following the
nk of Japan’s interest rate increase and weaker-than-expected labor market
indicators in the U.S., investors sought to deleverage their yen-carry trades, leading to heightened
volatility across many markets.
In U.S. property markets, residential real estate valuations remained near the peak levels seen
in the mid-2000s. C
arket conditions continued to deteriorate, especially for the office and
multifamily sectors. Farmland prices were historically elevated relative to rents, reflecting limited
inventories of land.
Table 1.1 shows the sizes of the asset markets discussed in this section. The two largest asset
markets are those for equities and residential real estate, which are substantially larger than the
next two biggest markets, Treasury securities and C
. The table also shows recent and histori-
cal growth rates for each asset class, because assets experiencing strong growth can be a sign
of high risk appetite with respect to that sector.
Treasury yields fell but remained high relative to the past 15 years
Since the April report, the Treasury yield curve steepened, with the 2-year Treasury yield falling
below the 10-year yield, owing in part to expectations that monetary policy would become less
restrictive. However, yields remained well above their average levels over the past 15 years
(figure 1.1). 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—was near the top of its range since 2010 (figure 1.2 ). Interest rate vola-
tility implied by options remained elevated by historical norms (figure 1.3), reflecting, in part,
high uncertainty about the economic outlook and the associated path of monetary policy
as well as heightened sensitivity to news about output growth, inflation, and the supply of
Treasury securities.
6 F inancial Stability re port
Table 1.1. Size of selected asset markets
Item Outstanding
(billions of dollars)
2023:Q2–2024:Q2
Average annual growth,
1998–2024:Q2
Equities 64,379 20.5 8.7
Residential real estate 59,774 6.0 6.4
Treasury securities 26,903 8.6 8.4
Commercial real estate 21,828 −10.8 5.8
Investment-grade corporate bonds 7,820 6.2 7.9
Farmland 3,515 6.6 5.8
High-yield and unrated corporate bonds 1,627 −1.6 6.1
Leveraged loans1 1,392 −.1 12.4
Price growth (real)
Commercial real estate2 −2.0 3.0
Residential real estate3 1.7 2.7
Note: The data extend through 2024:Q2. Outstanding amounts are in nominal terms. Growth rates are nominal and
are measured from Q2 of the year immediately preceding the period through Q2 of the ﬁnal year of the period. Equi-
ties, real estate, and farmland are at nominal market value; bonds and loans are at nominal book value.
1 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 2001 to 2024:Q2, as this market was fairly small before then.
2 One-year growth of commercial real estate prices is from June 2023 to June 2024, and average annual growth is
from June 1999 to June 2024. Both growth rates are calculated from equal-weighted nominal prices deﬂated using
the consumer price index (CPI).
3 One-year growth of residential real estate prices is from June 2023 to June 2024, and average annual growth is
from June 1998 to June 2024. 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 but remained high
1999 2004 2009 2014 2019 2024
Monthly average
Percent, annual rate
Source: Federal re serve bo ard, Statistical re lease H.15, “Selected Interest ra tes.”
A sset valu ations 7
Equity market valuations are elevated
The ratio of equity prices to expected
12-month earnings, or the P/E ratio, which at
the time of the April report was already in the
upper end of its range since 1989, continued
to climb (figure 1.4). The difference between
the forward P/E ratio and the real 10-year
Treasury yield—a measure of the additional
return that investors require for holding
stocks relative to risk-free bonds (the equity
premium)—remained well below its historical
median (figure 1.5).
2 Option-implied equity
market volatility rose, on net, after briefly
spiking in early August (figure 1.6, black line).
hat said, it remains near the median of its
historical distribution.
2 T his estimate is constructed based on expected corporate earnings for 12 months ahead.
3 r e alized volatility also briefly spiked in August (figure 1.6, blue line), and market-based perceptions of downside risk,
which are measured as the cost of insurance against a 10 percent price decline in equities over a monthly horizon,
rose, on net, since the April report.
Figure 1.2. An estimate of the nominal
Treasury term premium was near the top of its
range since 2010
1999 2004 2009 2014 2019 2024
Monthly average
Percentage points
Source: Department of the Treasury; Wolters Kluwer,
ue Chip Financial Forecasts; Federal
of New York; Federal
ard staff estimates.
Figure 1.3. Interest rate volatility remained
well above its median since 2005
2006 2009 2012 2 015 2018 2021 2024
Monthly average
Basis points
Median = 81.62
Source: For data through July 13, 2022, ba rclays
and S&P Global; for data from July 14, 2022,
onward, ICAP, Swaptions and Interest
te Caps and
Floors Data.
Figure 1.4. The price-to-earnings ratio of
S&P 500 firms climbed to the upper end of
its historical range
1989 1996 2003 2010 2017 2024
Median = 15.72
Source: re finitiv, Institutional br okers’ Estimate
System, North American Summary & Detail
Estimates, Level 2, Current & History Data, Adjusted
and Unadjusted, https://www.lseg.com/en/
data-analytics/financial-data/company-data/ibes-
estimates.
8 F inancial Stability re port
Spreads in corporate debt markets remained low
Yields for investment- and speculative-grade bonds fell moderately since the April report
(figure 1.7) and more than comparable-maturity Treasury securities, resulting in slightly
lower spreads. Corporate bond spreads remained low relative to their historical distributions
(figure 1.8). However, the excess bond premium for all nonfinancial corporate bonds—a measure
of the risk premium required by bond investors after controlling for bond characteristics and credit
quality—stayed around its long-run mean (figure 1.9). In addition, nonprice indicators did not
Figure 1.7. Corporate bond yields fell
somewhat and were near their median for the
past 30 years
High-yield
1999 2004 2009 2014 2019 2024
Source: ICE Data Indices, LLC, used with permission.
Figure 1.8. Corporate bond spreads went
down a little and were at low levels
Triple-B (left scale)
High-yield (right scale)
1999 2004 2009 2014 2019 2024
Percentage pointsPercentage points
Source: ICE Data Indices, LLC, used with permission.
Figure 1.6. Volatility in equity markets
remained near its historical median
Option-implie d volatility
Realized volatility
1996 2000 2004 2008 2012 2016 2020 20 24
Monthly average
Median = 19.02
Source: Cboe vo latility Index®  (vI X® ) accessed via
oomberg Finance L.P.; Federal
estimates.
Figure 1.5. An estimate of the equity premium
remained well below its long-run median
1994 2000 2006 2012 2018 2024
Percentage points
Median = 4.68
Source: re finitiv, Institutional br okers’ Estimate
System, North American Summary & Detail
Estimates, Level 2, Current & History Data, Adjusted
and Unadjusted, https://www.lseg.com/en/
data-analytics/financial-data/company-data/ibes-
estimates.
A sset valu ations 9
suggest elevated risk appetite. For example, the share of deep junk corporate bond issuance—
the fraction of bonds rated
r lower relative to total non-investment-grade issuance—hovered
around low levels in the second quarter of 2024. Market-based forecasts of one-year-ahead
default probabilities (a forward-looking indicator of credit quality) of nonfinancial firms remained
somewhat elevated by historical standards.
Since the last report, the average spread on leveraged loans in the secondary market stayed
moderately below its average over the past decade (figure 1.10), and the year-ahead expected
default rate remained somewhat elevated relative to its historical average level.
Figure 1.9. The excess bond premium remained just below its long-run average
1999 2004 2009 2014 2019 2024
Percentage points
Source: Federal re serve bo ard staff calculations based on Lehman br others Fixed Income Database (Warga);
Intercontinental Exchange, Inc., ICE Data Services; Center for
search in Security Prices, C rS
P/Compustat Merged
Database, Wharton
search Data Services; S&P Global, Compustat.
Figure 1.10. Spreads on leveraged loans stayed moderately below their averages over the past decade
1999 2004 2009 2014 2019 2024
Percentage points
Frequency change
Source: Pitchbo ok Data, Leveraged Commentary & Data.
10 F inancial Stability rep ort
Market liquidity remained low by historical standards
Market liquidity refers to the ease 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 continued market functioning, leading to a situation in which partici-
pants are unable to trade without incurring a significant cost.
Treasury market liquidity is important because of the key role these securities play in the finan-
cial system.
rious measures of market liquidity, such as market depth, suggested that liquidity
in the Treasury cash market remained low by historical standards, especially in the on-the-run
segment (figures 1.11 and 1.12). However, liquidity is affected by volatility, and recent levels
of liquidity partly reflected elevated measures of interest rate volatility. The effect of low levels
Figure 1.11. Treasury market depth remained below historical norms
5-year (right scale)
10-year (right scale)
30-year (left scale)
Feb. MayA ug.N ov.F eb.M ay Aug. Nov. Feb. MayA ug.N ov.F eb.M ay Aug. Nov. Feb. MayA ug.N ov.F eb.M ay Aug. Nov.
5-day moving average
Millions of dolla rsMillions of dolla rs
2019 2020 2021 2022 2023 2024
Source: Inter Dealer br oker Community.
Figure 1.12. On-the-run market depth continued to be below historical norms
2-year OTR market depth (right scale)
10-year OTR market depth (left scale)
Oct. Jan. Apr. JulyO ct.J an.A pr. JulyO ct.J an.A pr. JulyO ct.J an.A pr. JulyO ct.J an.A pr. JulyO ct.
5-day moving average
Millions of dolla rsMillions of dolla rs
2019 2020 2021 2022 2023 2024
Source: br okerTec; Federal re serve bo ard staff calculations.
A sset valu ations 11
of market depth on price impact has been limited because market participants split trades into
smaller quantities, and liquidity providers have responded to orders quickly enough to prevent
trades from exhausting best-price quotes and amplifying volatility in Treasury markets. Overall,
liquidity conditions in the Treasury cash market appear challenged and could amplify shocks.
In other markets, liquidity conditions present a mixed picture. Liquidity in corporate bond markets
remained in line with the average level observed in recent years, and bid-ask spreads stayed
close to their lowest levels since the 2007–09 financial crisis. In contrast, liquidity conditions in
equity markets remained low relative to their longer-term distribution since the financial crisis and
deteriorated somewhat further after the early August spike in equity volatility (figure 1.13 ).
Commercial real estate prices were little changed
Aggregate CrE p rices measured in inflation-
adjusted terms were little changed since
the April report, with the previous pace of
declines appearing to have slowed over
the past six months broadly across C
ectors (figure 1.14). However, these
transaction-based prices still may not fully
reflect the deterioration in C
arket prices
because, rather than realizing losses, many
owners wait for more favorable conditions
to put their properties on the market. The
strains on the office sector resulting from
an ongoing post-pandemic adjustment have
Figure 1.13. A measure of liquidity in equity markets remained below its average
1999 2004 2009 2014 2019 2024
5-day moving average
Market depth (number of contracts)
Average = 281
Source: re finitiv, DataScope Tick History; Federal re serve bo ard staff calculations.
Figure 1.14. Commercial real estate prices
adjusted for inflation were little changed
2004 2008 2012 2016 2020 20 24
Jan. 2001 = 100
Source: re al Capital Analytics; consumer price index,
reau of Labor Statistics via Haver Analytics.
12 F inancial Stability rep ort
continued to mount. va cancy rates for offices
located in central business districts increased
further, albeit at a slower pace, and nominal
rents were about flat since the April report.
cancy rates also have risen for multifamily
and industrial properties, and rent growth has
weakened for these types of properties. Capi-
talization rates at the time of property pur-
chase, which measure the annual income of
commercial properties relative to their prices,
remained near the low end of the historical
distribution, but the high uncertainty about
lags in the declines registered by C
indexes and fundamentals across CrE m
kets makes them less reliable in assessing
valuation pressures (figure 1.15). In the
July 2024 Senior Loan Officer Opinion Survey
nk Lending Practices (SLOOS), banks reported having tightened standards for all C rE lo
categories again in the second quarter of 2024 (figure 1.16).4 Most banks indicated that the cur-
rent levels of standards for CrE lo
ans were at least somewhat tighter than the midpoint of their
historical distribution over the past 20 years.
4 T he SLOOS results reported in the this report are based on banks’ responses weighted by each bank’s outstanding
loans in the respective loan category and might therefore differ from the results reported in the published SLOOS,
which are based on banks’ unweighted responses.
Figure 1.16. Banks reported having tightened lending standards for commercial real estate loans
1999 2004 2009 2014 2019 2024
Net percentage of banks reporting
Easing Tightening
Source: Federal re serve bo ard, Senior Loan Officer Opinion Survey on ba nk Lending Practices; Federal re serve
rd staff calculations.
Figure 1.15. Income of commercial properties
relative to prices increased but remained
below its historical average
2004 2008 2012 2016 2020 20 24
Source: re al Capital Analytics; Andrew C. Florance,
Norm G. Miller,
ijue Peng, and Jay Spivey (2010),
“Slicing, Dicing, and Scoping the Size of the U.S.
Commercial
al Estate Market,” Journal of Real
Estate Portfolio Management,  vol. 16 (May–August),
pp. 101–18.
A sset valu ations 13
Residential real estate prices remained high relative to fundamentals
va luations in the residential real estate sector continued to increase since the April report from
levels that were already elevated relative to historical standards. The growth of house prices con-
tinued through August of this year (figure 1.17). A model of house price valuation based on prices
relative to market rents and the real 10-year Treasury yield suggests that valuations in housing
markets remained stretched. Moreover, an alternative measure of valuation pressures (which
uses owners’ equivalent rent instead of market rents and has a longer history) also suggested
elevated valuations (figure 1.18). The median price-to-rent ratio measured across a wide distribu-
tion of geographic areas was little changed over the first half of 2024, around its previous peak
in the mid-2000s (figure 1.19). In contrast to the early-to-mid 2000s, lenders have not shown
Figure 1.19. House price-to-rent ratios remained elevated across geographic areas
Middle 80 percent of markets
1996 2000 2004 2008 2012 2016 2020 20 24
Jan. 2010 = 100
Source: For house prices, Zillow, Inc., re al Estate Data; for rent data, bu reau of Labor Statistics.
Figure 1.17. Nominal house prices continued
to increase in recent months
CoreLogi c
Case-S hiller
2003 2006 2009 2012 2 015 2018 2021 2024
12-month percent change
Source: Zillow, Inc., re al Estate Data; CoreLogic,
al Estate Data; S&P Case-Shiller Home
Price Indices.
Figure 1.18. Model-based measures of
house price valuations climbed to historically
high levels
Owners’ equivalent rent
Market-based rents
1982 1989 1996 2003 2010 2017 2024
Source: For house prices, Zillow, Inc., re al Estate
Data; for rent data,
reau of Labor Statistics.
14 F inancial Stability rep ort
the high risk appetite that fueled excessive borrowing in that earlier period, suggesting that weak
credit standards are not driving recent house price growth. For example, banks reported in the
SLOOS that standards for residential real estate loans were on the tighter end of their historical
range since 2005.
Farmland valuations remained high relative to farm income
Farmland valuations remained elevated, as in 2024 U.S. farmland prices continued to rise past
the previous peak of the historical distribution (figure 1.20). Farmland price-to-rent ratios hovered
around a level roughly twice the median of their historical distribution (figure 1.21). Prices contin-
ued to be sustained in the short run by limited farmland inventory despite declining farm income,
elevated interest rates, and higher operating costs.
Figure 1.20. Inflation-adjusted farmland prices rose further from already-elevated levels
Midwest index
1968 1976 1984 1992 2000 2008 2016 2024
8000Annual
2023 dollars per acre
Median = $3,596.66
Source: Department of Agriculture; Federal re serve ba nk of Minneapolis staff calculations.
Figure 1.21. Farmland prices relative to rents increased to historical highs
Midwest index
1968 1976 1984 1992 2000 2008 2016 2024
Median = 18.19
Source: Department of Agriculture; Federal re serve ba nk of Minneapolis staff calculations.
Vulnerabilities from business and household debt remained moderate
The balance sheet conditions of households and businesses continued to improve on net. Growth
in nominal GDP has outpaced the modest growth in total private nonfinancial-sector debt in
recent years. As a result, the debt-to-GDP ratio has declined to the lowest level in two decades
(figure 2.1). Trends in both the household and business sectors contributed to the decline in the
overall debt-to-GDP ratio.
siness debt-to-GDP ( figure 2.2, blue line) and gross leverage of publicly traded corporations
remained at levels near the top of their respective historical ranges. Interest coverage ratios
)—defined as the ratio of earnings before interest and tax to interest expense—remained
flat at moderate levels, partly reflecting resilient earnings.
Borrowing by Businesses and
Households
Figure 2.1. The total debt of businesses and households relative to GDP declined to its lowest level in
1982 1988 1994 2000 2006 2012 2018 2024
Source: Federal re serve bo ard staff calculations based on bu reau of Economic Analysis, national income and
product accounts, and Federal
ard, Statistical
lease Z.1, “Financial Accounts of the United States.”
Figure 2.2. Both business and household debt-to-GDP ratios continued to edge down
Nonﬁnancia l business
(right scale)
Househol d (left scale)
1982 1988 1994 2000 2006 2012 2018 2024
RatioRatio
Source: Federal re serve bo ard staff calculations based on bu reau of Economic Analysis, national income and
product accounts, and Federal
ard, Statistical
lease Z.1, “Financial Accounts of the United States.”
16 F inancial Stability rep ort
The household debt-to-GDP ratio continued to edge down to near 20-year lows (figure 2.2, black
line). Homeowners have solid equity cushions, and many households have been benefiting from
lower interest rate payments associated with refinancing or home purchases several years ago.
That said, delinquency rates for credit cards and auto loans to nonprime borrowers were above
their pre-pandemic levels.
While balance sheets in the nonfinancial business and household sectors remained sound, a
sharp downturn in economic activity would depress business earnings and household incomes
and reduce the debt-servicing capacity of smaller, riskier businesses with already low IC
as particularly financially stretched households.
For additional context, table 2.1 shows the amounts outstanding and recent historical growth
rates of different forms of debt owed by nonfinancial businesses and households as of the
second quarter of 2024.
Table 2.1. Outstanding amounts of nonﬁnancial business and household credit
Item Outstanding
(billions of dollars)
2023:Q2–2024:Q2
Average annual growth,
1998–2024:Q2
Total private nonﬁnancial credit 41,542 2.6 5.4
Total nonﬁnancial business credit 21,407 2.3 5.8
Corporate business credit 13,835 2.5 5.4
Bonds and commercial paper 8,420 2.8 5.6
Bank lending 2,207 2.1 4.2
Leveraged loans1 1,354 −.3 12.6
Noncorporate business credit 7,571 2.0 6.8
Commercial real estate credit 3,196 1.3 6.0
Total household credit 20,136 2.8 5.1
Mortgages 13,140 2.6 5.0
Consumer credit 5,023 1.7 5.2
Student loans 1,745 −.9 7.4
Auto loans 1,563 1.8 5.3
Credit cards 1,307 6.7 3.7
Nominal GDP 28,652 5.9 4.7
Note: The data extend through 2024:Q2. Outstanding amounts are in nominal terms. Growth rates are nominal and
are measured from Q2 of the year immediately preceding the period through Q2 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 both nonﬁnan-
cial corporate and noncorporate businesses as deﬁned in Table L.220: Commercial Mortgages in the “Financial
Accounts of the United States.” Total household-sector credit includes debt owed by other entities, such as nonproﬁt
organizations. GDP is gross domestic product.
1 Leveraged loans included in this table are an estimate of the leveraged loans that are made to nonﬁnancial busi-
nesses 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. Average annual growth of leveraged loans is
from 2001 to 2024:Q2, as this market was fairly small before then.
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.”
bo rrowing by bus inesses and Households  17
Business debt vulnerabilities remained moderate
Nonfinancial business debt adjusted for infla -
tion grew modestly in the first half of this year
after declining in 2023 (figure 2.3). Traditional
sources of business debt, such as corpo-
rate bonds and bank-intermediated loans,
have grown slowly in recent quarters. Net
issuance of risky debt—defined as issuance
of speculative-grade bonds, unrated bonds,
and leveraged loans minus retirements and
repayments—edged up in the second and
third quarters of 2024, partially reversing
declines in previous quarters (figure 2.4). The
net issuance of institutional leveraged loans,
which has been particularly weak since late
2022, was moderately positive in the third quarter. In contrast to traditional forms of business
credit, private credit has grown quickly recently and constitutes about 7 percent of total outstand-
ing nonfinancial corporate debt.
Gross leverage—the ratio of debt to assets—of all publicly traded nonfinancial firms remained
high by historical standards in the second quarter of 2024 (figure 2.5 ), though significantly
lower than record highs seen at the onset of the pandemic. Net leverage—the ratio of debt less
cash to total assets—also stayed elevated among large publicly traded businesses. Overall,
corporate profits remained robust, and firms continued to be well placed to service their debt,
despite some emerging signs of weakness among riskier firms. The median IC
for all publicly
traded firms and for publicly traded firms rated below-investment-grade was flat in the first half
Figure 2.3. Business debt adjusted for
inflation grew modestly
1999 2004 2009 2014 2019 2024
Percent change, annual rate
Source: Federal re serve bo ard, Statistical re lease Z.1,
“Financial Accounts of the United States.”
Figure 2.4. Net issuance of risky debt remained subdued
Instituti onal leveraged loans
High-yield and unrated bonds
2004 2008 2012 2016 2020 2024
Billions of dolla rs
Source: Mergent, Inc., Fixed Income Securities Database; Pitch bo ok Data, Leveraged Commentary & Data.
18 F inancial Stability rep ort
of 2024, around levels that were well below post-pandemic peaks and somewhat below the level
that prevailed from 2011 to 2020 (figure 2.6). The pass-through of higher interest rates to firms’
borrowing costs remained moderate, reflecting record fixed-rate debt issuance by firms during the
pandemic when interest rates were low.
5 The 12-month trailing corporate bond default rate was
little changed, on net, around the median of its historical distribution. Expectations of year-ahead
defaults remained somewhat elevated relative to their history.
Credit quality of leveraged loans remained below historical norms. The share of newly issued
loans to large corporations with debt multiples—defined as the ratio of debt to earnings before
interest, taxes, depreciation, and amortization—greater than 4 fell in 2023 to its lowest level in
the past decade and it hovered around that level through the third quarter of 2024 (figure 2.7 ).
n outstanding leveraged loans remained in the low end of their historical distribution for the
past decade, and ICrs o
n newly issued leveraged loans were also near their historical lows since
2006. The volume-weighted default rate on leveraged loans stayed well below previous peaks.
However, the number of defaults and distressed loans that have been worked out (that is, renego-
tiated between the borrower and the lender) has been elevated relative to history (figure 2.8 ).
Small and middle-market firms that are privately held—which have less access to capital markets
and primarily borrow from banks, private credit funds, and other sophisticated investors (such as
insurance companies)—account for roughly 60 percent of the total outstanding debt of U.S. non-
financial firms. While data for these firms are not as comprehensive as those for larger firms, vul-
nerabilities for these firms continued to edge up throughout the second quarter of 2024. Median
5 O nly about 8 percent of outstanding bonds rated triple- b  and 4 percent of outstanding high-yield bonds are due within
a year. That said, about 16 percent of outstanding bonds rated triple- b
and 20 percent of outstanding high-yield
bonds are due within one to three years, indicating that pass-through may be higher if borrowing costs stay elevated
for longer.
Figure 2.5. Gross leverage of large businesses
stayed high by historical standards
75th percentil e
2000 2004 2008 2012 2016 2020 20 24
Source: Federal re serve bo ard staff calculations
based on S&P Global, Compustat.
Figure 2.6. Interest coverage ratios, which
indicate firms’ ability to service their debt,
have changed little
Median for all ﬁrms
Median for all non-inve stment-grade ﬁrms
2000 2004 2008 2012 2016 2020 20 24
Source: Federal re serve bo ard staff calculations
based on S&P Global, Compustat.
bo rrowing by bus inesses and Households  19
gross and net leverage of private firms continued to inch up in the second quarter of 2024 but
remained a bit below their historical medians. The ICr
for the median firm in this category kept
its downward trend from its peak in 2022 and currently stands only slightly above pre-pandemic
levels, as higher interest rates started to reduce earnings and raise the cost of debt servicing.
The average IC
at issuance for private credit is below 2, indicating debt-servicing capacity in the
range of below-investment-grade public firms.
Delinquencies at small businesses were above pre-pandemic levels,
and credit availability tightened
Interest rates on small business loans have been largely stable in recent months and remained
near the top of the range observed since 2008. According to the National Federation of Inde-
siness’s Small
siness Economic Trends Survey, the share of firms that borrow
regularly has fallen in recent months and sits in the lower range of its historical distribution in
Figure 2.7. New leveraged loans with debt multiples greater than 4 have been near their lowest levels
in a decade
Debt multiples ≥ 6x
Debt multiples 5x–5.99x
Debt multiples 4x–4.99x
Debt multiples < 4x
2003 2006 2009 2012 2 015 2018 2021 2024
Source: Mergent, Inc., Fixed Income Securities Database; Pitch bo ok Data, Leveraged Commentary & Data.
Figure 2.8. The default rate on leveraged loans remained well below its previous peaks
Realized default rate
Realized default rate (including
distresse d exchanges)
1999 2004 2009 2014 2019 2024
Source: Pitchbo ok Data, Leveraged Commentary & Data.
20 F inancial Stability rep ort
September 2024.6 Credit availability appeared to tighten for small firms in recent months. Data
from the Small
siness Lending Survey showed that banks continued to tighten standards
on loans to small businesses.7 Further, measures of small business loan originations declined
through September 2024. Small business credit quality has deteriorated in recent quarters, as
both short-term (up to 90 days) and long-term (more than 90 days) delinquency rates rose from
the historically low levels reached in spring 2022 to above their pre-pandemic levels.
Vulnerabilities from household debt remained moderate
Outstanding household debt adjusted for inflation has been little changed since the April report
(figure 2.9). The ratio of total required household debt payments to total disposable income
(the household debt-service ratio) was little changed at modest levels. As most household debt
carries fixed interest rates, the increase in interest rates over 2022 and 2023 has only partially
passed through to household interest expenses.
Mortgage credit risk remained low
Mortgage debt accounts for roughly three-fourths of total household debt. Since the April report,
estimates of housing leverage, which measure outstanding mortgage loan balances relative to
home values, stayed significantly below their previous peaks (figure 2.10). The model-based
6 T his survey’s data are available on the National Federation of Independent bu siness’s website at https://www.nfib.
com/surveys/small-business-economic-trends .
7 T his survey’s data are available on the Federal re serve ba nk of Kansas City’s website at https://www.kansascityfed.
org/surveys/small-business-lending-survey/ .
Figure 2.9. Inflation-adjusted household debt has been little changed
Near prime
1999 2004 2009 2014 2019 2024
Trillions of dollar s (real)
Source: Federal re serve ba nk of New York Consumer Credit Panel/Equifax; consumer price index, bu reau of Labor
Statistics via Haver Analytics.
bo rrowing by bus inesses and Households  21
measure (black line), which measures home values as a function of rents and other market fun-
damentals, indicated higher leverage than the market-based measure (blue line), suggesting that
homeowners’ current large equity cushions are vulnerable to a future price correction. However,
the model-based measure was only modestly elevated relative to its history. The overall mortgage
delinquency rate and the share of mortgage balances in loss-mitigation programs in the third
quarter remained close to the lower end of their historical distribution (figure 2.11). Delinquency
rates have been held in check by large home equity cushions (figure 2.12) and strong underwrit-
ing standards.
Figure 2.10. A model-based estimate of housing leverage stayed significantly below its peak levels
Relative to model-implie d values
Relative to market value
1999 2004 2009 2014 2019 2024
1999:Q1 = 100
Source: Federal re serve ba nk of New York Consumer Credit Panel/Equifax; Zillow, Inc., re al Estate Data; bu reau of
Labor Statistics via Haver Analytics.
Figure 2.11. Mortgage delinquency rates
remained close to the low end of their
historical distribution
All mortgages
Mortgages in loss mitigation
2004 2009 2014 2019 2024
Percent of mortgages
Source: Federal re serve ba nk of New York Consumer
Credit Panel/Equifax.
Figure 2.12. Very few homeowners had
negative equity in their homes
2012 2014 2016 2018 2020 20 22 2024
Percent of mortgages
Source: CoreLogic, Inc., re al Estate Data.
22 F inancial Stability rep ort
New mortgage extensions, which have been skewed heavily toward prime borrowers over the
past decade, continued to decline in the second quarter of 2024 amid elevated mortgage rates
and high house prices (figure 2.13). In the fourth quarter of 2023, the early payment delinquency
rate—the share of balances becoming delinquent within one year of mortgage origination—
remained somewhat above the median of its historical distribution, possibly reflecting higher
house prices and interest rates and the corresponding financial strains on newly originated
mortgages.
Credit risk of consumer debt edged up, with some signs of stress
among borrowers with lower credit scores
Consumer debt—which accounts for the remaining one-fourth of household debt and consists
primarily of student, auto, and credit card loans—was about flat in inflation-adjusted terms since
the last report (figure 2.14). However, delinquency rates for auto loans and credit cards remained
Figure 2.13. New mortgage extensions declined across all borrower categories
Near prime
2000 2004 2008 2012 2016 2020 2024
1800Annual
Billions of dollar s (real)
Source: Federal re serve ba nk of New York Consumer Credit Panel/Equifax; consumer price index, bu reau of Labor
Statistics via Haver Analytics.
Figure 2.14. Inflation-adjusted consumer credit has been about flat since late last year
Student loans
Auto loans
Credit cards
1999 2004 2009 2014 2019 2024
Billions of dollar s (real)
Source: Federal re serve ba nk of New York Consumer Credit Panel/Equifax; consumer price index, bu reau of Labor
Statistics via Haver Analytics.
bo rrowing by bus inesses and Households  23
above average, particularly among borrowers with lower credit scores. These borrowers hold a rel-
atively small share of aggregate debt, and their high delinquency rates reportedly reflect, in part,
increased borrowing by some households during and after the pandemic, rather than an abrupt
broad-based weakening in households’ ability to repay. Partly in response, lenders have tightened
credit standards on those types of loans.
Inflation-adjusted auto loan balances were about flat since the last report at levels below their
recent highs. Continued growth for subprime borrowers offset small declines for near-prime bor-
rowers. The average maturity of auto loans at origination remained elevated in recent quarters,
particularly for lower-credit score borrowers (figure 2.15). On balance, long-maturity loans tend to
have higher default risks, partly because such loans have higher risk of falling deep into a nega-
tive equity position, which can be a factor that influences consumer defaults. The share of auto
loans in delinquent status stayed at a level somewhat above its historical median (figure 2.16)
after having increased moderately in recent years, largely owing to a more significant rise in
auto loan delinquencies for subprime borrowers throughout 2023. The rise in delinquencies for
Figure 2.15. Average maturity of auto loans at origination for used cars remained elevated
Near prime
2018 2019 2020 20 21 2022 2023 2024
Source: Experian ve locity.
Figure 2.16. Auto loan delinquencies have been somewhat above normal levels
2000 2004 2008 2012 2016 2020 2024
Source: Federal re serve ba nk of New York Consumer Credit Panel/Equifax.
24 F inancial Stability rep ort
subprime borrowers likely owes to a combination of factors, such as high car prices, loosened
underwriting, higher interest rates, and elevated loan maturities.
Aggregate inflation-adjusted credit card balances were little changed for prime and near-prime
borrowers through the third quarter of 2024 but continued to inch up for subprime borrowers
(figure 2.17). Credit card delinquency rates moved up further in the third quarter and have
reached their highest level since 2010 (figure 2.18), which largely owes to elevated delinquencies
among nonprime borrowers.
Figure 2.17. Inflation-adjusted credit card balances for subprime borrowers trended higher but
remained well below previous peaks
Near prime
1999 2004 2009 2014 2019 2024
Billions of dollar s (real)
Source: Federal re serve ba nk of New York Consumer Credit Panel/Equifax; consumer price index, bu reau of Labor
Statistics via Haver Analytics.
Figure 2.18. Credit card delinquencies rose further to somewhat above their pre-pandemic levels
2000 2004 2008 2012 2016 2020 2024
Source: Federal re serve ba nk of New York Consumer Credit Panel/Equifax.
Leverage in the Financial Sector3
Vulnerabilities associated with financial leverage remained notable
The banking system, overall, remained sound and resilient. Measures of regulatory capital for
banks increased further over the first half of 2024, and indicators of profitability were near aver-
age levels. However, fair value losses on banks’ fixed-rate assets as of the start of November
remained sizable, the fair value of banks’ assets continued to be sensitive to movements in long-
term interest rates, and some banks still had concentrated exposures to loans backed by C
Outside the banking sector, leverage at broker-dealers was stable near historically low levels, but
uncertainties around dealers’ intermediation capacity during periods of market stress remained a
vulnerability to Treasury markets. Life insurers’ leverage was little changed and continued to hold
a significant share of illiquid and risky assets. In the first quarter of 2024, measures of hedge
fund leverage that account for hedge fund size were at or near the highest level observed since
the data became available in 2013.
Table 3.1 shows the sizes and growth rates of the assets of financial institutions discussed in
this section.
Bank profitability remained solid
Measures of bank profitability over the first half of 2024 were within typical ranges, and third-
quarter earnings reports showed that overall profitability remained robust.
nks’ average rate
on interest-earning assets continued to sit well above the average interest rate paid on liabilities
as of the second quarter of 2024 (figure 3.1). The gap between the two rates, known as the
net interest margin, narrowed slightly in the first half of 2024 relative to its levels in 2023. The
narrowing reflected some further pass-through to bank funding rates of higher rates on short-term
instruments that outpaced the pass-through to interest rates on assets.
Measures of banks’ regulatory capital increased further
The common equity Tier 1 (CET1) ratio—a regulatory risk-based measure of bank capital
adequacy—increased further during the first half of 2024 across all bank-size categories
(figure 3.2). CET1 ratios for global systemically important banks (G-SI
) and for the other bank
holding companies group (those not considered G-SI bs o
r large non–G-SI bs
) reached the high-
est levels recorded in the past decade, while the average CET1 ratio for large non–G-SI bs h
surpassed pre-pandemic levels. Third-quarter earnings reports suggest that most banks further
increased their regulatory capital positions.
26 F inancial Stability rep ort
Figure 3.1. Banks maintained sound net interest margins
Average interes t rate on interes t-earning assets
Average interes t expense rate on liabilities
2014 2016 2018 2020 2022 2024
Source: Federal re serve bo ard, Form Fr  Y-9C, Consolidated Financial Statements for Holding Companies.
Table 3.1. Size of selected sectors of the ﬁnancial system, by types of institutions and vehicles
Item Total assets
(billions of dollars)
2023:Q2–2024:Q2
Average annual growth,
1998–2024:Q2
Banks and credit unions 27,717 1.7 5.6
Mutual funds 20,995 11.4 8.3
Insurance companies 13,337 5.8 5.4
Life 9,963 5.5 5.4
Property and casualty 3,373 6.7 5.6
Hedge funds1 10,938 16.38 .3
Broker-dealers2 5,952 8.8 4.8
Outstanding
(billions of dollars)
Securitization 13,579 1.0 5.4
Agency 12,037 .7 5.8
Non-agency3 1,542 3.7 3.6
Note: The data extend through 2024:Q2 unless otherwise noted. Outstanding amounts are in nominal terms. Growth
rates are nominal and are measured from Q2 of the year immediately preceding the period through Q2 of the ﬁnal year
of the period. Life insurance companies’ assets include both general and separate account assets.
1 Hedge fund data start in 2012:Q4 and are updated through 2024:Q1. Growth rates for the hedge fund data are
measured from Q1 of the year immediately preceding the period through Q1 of the ﬁnal year of the period.
2 Broker-dealer assets are calculated as unnetted values.
3 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.”
L everage in the Financial Sector  27
Fair value losses in fixed-rate assets remained sizable, and
the sensitivity of the values of those assets to interest rates
remained high
As interest rates rose from pandemic lows over 2022 and the first part of 2023, the fair value of
banks’ fixed-rate assets declined substantially. However, with interest rates leveling off in recent
quarters, these declines started to moderate, and fair values were basically flat, on net, during
the first half of 2024. At the end of the second quarter of 2024, the fair value of banks’ available-
for-sale (AFS) and held-to-maturity (HTM) portfolios were below their book values by $203 billion
and $308 billion, respectively (figure 3.3).
The tangible common equity (TCE) ratio, which corresponds to the ratio of TCE to total tangible
assets, is an alternative measure of bank capital. The TCE ratio has similarities to the CET1 ratio
in that both exclude intangible items such as goodwill from the measurement of capital, but there
Figure 3.2. Banks’ average risk-based capital ratios were above pre-pandemic levels
Large non–G-SIBs
Other BHCs
2003 2006 2009 2012 2 015 2018 2021 2024
Percent of risk-weighted assets
Source: Federal re serve bo ard, Form Fr  Y-9C, Consolidated Financial Statements for Holding Companies.
Figure 3.3. The fair value losses of banks’ securities portfolios remained sizable
Available-for-sale securities
Held-to-maturity securities
2017 2018 2019 2020 20 21 2022 2023 2024
Billions of dolla rs
Source: Federal Financial Institutions Examination Council, Call re port Form FFIEC 031, Consolidated re ports of
Condition and Income (Call
port); Federal
ard, Form Fr
Y-9C, Consolidated Financial Statements for
Holding Companies.
28 F inancial Stability rep ort
are also important differences between the two. In contrast with the CET1 ratio, the TCE ratio
does not account for the riskiness of assets but does include fair value declines on AFS securi-
ties for all banks. The TCE ratio moved up across all bank-size categories in the second quarter
of 2024, reflecting increased bank capital from retained earnings during this period and a slight
improvement in the fair value of the AFS securities portfolio (figure 3.4 ).
While most banks have reduced their exposure to interest rate risk over the past year, primarily
by shortening the average maturity of their securities portfolios, some banks’ vulnerability to
changes in interest rates remained higher than normal. Interest rates declined significantly in the
third quarter but reversed much of that decline in October. As a result, reflecting the continued
elevated sensitivity of fixed-rate asset values to interest rates, fair value losses by the beginning
of November likely were only modestly below their levels at the end of the second quarter.
Credit quality at banks remained sound overall despite some
pockets of co
by the end of the second quarter of 2024, banks’ overall credit quality was sound. Third-quarter
earnings showed that credit quality was little changed but that some segments of CrE continued
to be a watchpoint. The aggregate bank-loan delinquency rate remained at historically low levels,
despite being a notch higher than the record lows observed at the end of 2022. Contributing to
the low aggregate delinquency rate are the low delinquency rates on residential real estate and
commercial and industrial (C&I) loans. In the case of C&I loans, the quality of the loans is solid,
Figure 3.4. The ratio of tangible common equity to tangible assets increased for banks of all
categories
Large non–G-SIBs
Other BHCs
1988 1994 2000 2006 2012 2018 2024
Percent of tangible assets
Source: For data through 1996, Federal Financial Institutions Examination Council, Call re port Form FFIEC 031,
Consolidated
ports of Condition and Income (Call
port). For data from 1997 onward, Federal
Y-9C, Consolidated Financial Statements for Holding Companies; Federal Financial Institutions Examination
Council, Call
port Form FFIEC 031, Consolidated
ports of Condition and Income (Call
L everage in the Financial Sector  29
as borrower leverage for all outstanding bank
C&I loans is relatively low (figure 3.5) and
recent SLOOS responses indicate that, after
tightening over most of 2022 and 2023,
credit standards for C&I loans have been little
changed this year (figure 3.6). However, the
delinquency rates for credit card and auto
loans are somewhat elevated and increased
further in the first half of 2024. Of note, expo-
sures in credit card loans remained concen-
trated in a few large banks that are subject
to regular stress testing and are therefore
expected to be better prepared to manage
losses in their loan portfolios.
In the aggregate, the delinquency rate on C
ans held on banks’ books was still at historically
low levels at the end of the second quarter, especially among regional and community banks.
Over the past several quarters, however, delinquency rates at larger banks have been showing
a modest upward trend. These increases reflect significant deterioration in the credit quality
of certain components of some banks’ C
ortfolios. Most notably, delinquency rates in CrE
ans backed by office properties increased further at large banks in the first half of 2024, as the
adjustment to new patterns of work continued to put downward pressure on prices and operating
income of office buildings. The delinquency rate on C
ans backed by multifamily properties
Figure 3.6. Credit standards for commercial and industrial loans were little changed in the first half
1999 2004 2009 2014 2019 2024
Net percentage of banks reporting
Easing Tightening
Source: Federal re serve bo ard, Senior Loan Officer Opinion Survey on ba nk Lending Practices; Federal re serve
rd staff calculations.
Figure 3.5. The financial condition of firms
with commercial and industrial bank loans
remained sound
Non-publicly-t raded ﬁrms
Publicly traded ﬁrms
2014 2016 2018 2020 20 22 2024
Debt as percentage of assets
Source: Federal re serve bo ard, Form Fr  Y-14Q
(Schedule H.1), Capital Assessments and
Stress Testing.
30 F inancial Stability rep ort
has remained low, reflecting the conservative C rE b ank lending standards of recent years, but
developments in this sector also pose some concern, as rental market fundamentals, such as
vacancy rates and rent growth, have been deteriorating. The Supervision and Regulation Report
discusses ways that supervisors are monitoring and addressing these risks with banks. 8
Leverage at broker-dealers remained low
ri sks posed to the financial system by broker-dealer leverage remained low on balance. Despite
ticking up in recent quarters, the ratio of assets to equity stood near historically low levels by the
end of the first half of 2024, as dealers increased equity to keep up with an expansion in assets
(figure 3.7). Dealers’ profits were up year-over-year and were slightly above pre-pandemic levels
(figure 3.8). The most recent data on broker-dealers’ trading profits continued to show a relatively
even distribution of the shares of profits coming from equity; fixed income, rates, and credit;
and other lines of business (figure 3.9). Dealers’ intermediation activity increased to record
highs, driven mainly by higher Treasury positions and secured financing amid rising volumes of
outstanding Treasury securities and elevated Treasury issuance. Nonetheless, during periods of
market stress, broker-dealers may not be able to meet increased intermediation demand, as their
capacity to intermediate may become reduced due to internal risk limits, a factor that has been a
structural vulnerability for the Treasury market.
8 T he most recent Supervision and Regulation Report  is available on the Federal re serve bo ard’s website at
https://www.federalreserve.gov/publications/supervision-and-regulation-report.htm .
Figure 3.7. Leverage at broker-dealers
remained near historical lows
1996 2000 2004 2008 2012 2016 2020 20 24
Ratio of assets to equity
Source: Federal re serve bo ard, Statistical re lease Z.1,
“Financial Accounts of the United States.”
Figure 3.8. Trading profits in the first half
of 2024 were within the range of the past
2018 2019 2020 20 21 2022 2023 2024
Millions of dolla rs
Source: Federal re serve bo ard, re porting,
cordkeeping, and Disclosure
quirements
Associated with
(Proprietary Trading
and Certain Interests in and
lationships with
Covered Funds, 12 C.F.r. p
L everage in the Financial Sector  31
In both the June and September 2024 Senior Credit Officer Opinion Survey on Dealer Financing
Terms (SCOOS), dealers reported that use of financial leverage and terms on securities financing
transactions and over-the-counter derivatives remained approximately unchanged.
9 re sponses to
special questions in the June survey indicated that most dealers increased capacity to provide
financing collateralized by Treasury securities in the past two years. Those moves responded to
increased demand for Treasury financing from customers, and dealers expect those demands to
increase further in the near future. For those dealers offering the enhanced service of immediate
execution in Treasury securities markets, about half responded that they increased their capacity
during the same period, while the other half kept their capacity unchanged. For the September
SCOOS special questions, respondents indicated significant use of volatility strategies and prod-
ucts across most client classes, most notably by hedge funds. In terms of net positions, hedge
funds tended to have a net-long volatility exposure, whereas mutual funds and exchange-traded
funds tended to have net-short volatility positions.
10 The use of net-short volatility strategies has
the potential to make volatility artificially lower during calmer times and amplify large volatility
shocks due to funds quickly unwinding their positions to limit their losses.
Insurance company leverage was little changed
re lative to the previous report, leverage at life insurers moved sideways and continued to be
above average relative to the values that prevailed in the previous 15 years, while leverage at
property and casualty (P&C) insurers remained at historically low levels (figure 3.10).
11 Life insur-
ers continued to allocate a substantial percentage of assets to risky and less liquid instruments,
9 T he SCOOS is available on the Federal re serve bo ard’s website at https://www.federalreserve.gov/data/scoos.htm .
10 bu ying volatility, or taking long positions in volatility, refers to taking positions that increase in value when volatility
increases. Selling volatility, or taking short positions in volatility, refers to taking positions that decrease in value
when volatility increases.
11 T he steep decline of P&C insurers’ leverage in the second quarter results from AIG, which is considered a P&C insurer
in our sample, having spun off its life insurance business in June.
Figure 3.9. The current distribution of the sources of broker-dealer trading profits was in line with
recent averages
Fixed income, rates, and credit
2018 2019 2020 20 21 2022 2023 2024
Source: Federal re serve bo ard, re porting, re cordkeeping, and Disclosure re quirements Associated with re gulation  vv
Proprietary Trading and Certain Interests in and
lationships with Covered Funds, 12 C.F.r. p
32 F inancial Stability rep ort
such as leveraged loans, collateralized loan obligations (CLOs), high-yield corporate bonds, pri-
vately placed corporate bonds, and alternative investments. Moreover, life insurance companies
have material direct exposures to commercial mortgages and are large holders of commercial
mortgage-backed securities (CM
). This exposure to illiquid and risky assets makes life insurers
vulnerable to an array of adverse shocks, including that of an economic downturn or of a signifi-
cant further deterioration of the C
Hedge funds’ leverage was at or near its highest level in
available data
Comprehensive data collected through SEC Form PF indicated that measures of leverage aver-
aged across all hedge funds were at or near the highest level observed since these data became
available in 2013.
lative to the previous report, leverage increased when measured using either
average on-balance-sheet leverage (blue line in figure 3.11)—which captures financial leverage
from secured financing transactions, such as repurchase agreements and margin loans, but does
not capture leverage embedded through derivatives—or average gross leverage of hedge funds
(black line in figure 3.11), a broader measure that also incorporates off-balance-sheet derivatives
exposures, but which does not account for netting of offsetting exposures. On-balance-sheet
leverage at the largest funds remained elevated at about 15-to-1 in the first quarter of 2024,
despite having declined in the most recent reading (figure 3.12). Leverage for the group of hedge
funds ranked 15 to 50 increased notably in the first quarter of 2024, with their ratio reaching
around 10-to-1, a level that is at the high end of the range since 2013. Small haircuts on Treasury
collateral in some markets where many funds obtain short-term financing contributed to these
high levels of leverage.
12 More recent data from the September SCOOS suggested that hedge
12 S ee Ayelen ba negas and Phillip Monin (2023), “Hedge Fund Treasury Exposures, re po, and Margining,” FEDS Notes
(Washington:
ard of Governors of the Federal
serve System, September 8), https://doi.org/10.17016/2380-
7172.3377, or Samuel Hempel,
bert Mann, and Mark Paddrik (2023), “Why Is So Much
po Not Cen-
trally Cleared?” OF r
ief 23-01 (Washington: Office of Financial
search, US Department of the Treasury, May 12),
https://www.financialresearch.gov/the-ofr-blog/2023/05/12/why-is-so-much-repo-not-centrally-cleared/ .
Figure 3.10. Leverage at life insurers remained above the average observed in the previous 15 years
Property and casualt y
2003 2006 2009 2012 2 015 2018 2021 2024
Ratio of assets to equity
Source: Generally accepted accounting principles data from 10-Q and 10-K filings accessed via S&P Global,
Capital IQ Pro.
L everage in the Financial Sector  33
fund leverage was stable, on net, as dealers reported the use of financial leverage by their hedge
fund clients remained largely unchanged between May and August 2024.
Of note, about one-fourth of dealers reported in the SCOOS that leverage at trading real estate
investment trusts (rE
ITs) had increased somewhat between May and August (figure 3.13).13 While
this development warrants monitoring, the relatively small size of the trading
IT sector should
limit spillovers from this sector to broader financial markets.
13 A t rading rE IT, also known as a mortgage rE IT, is a company that invests in mortgage-related assets such as
mortgages, mortgage-backed securities, and mortgage servicing rights. A company that elects to be taxed as a
receives favorable tax treatment in exchange for concentrating its investments in real estate–related assets and
distributing most of its taxable income to shareholders.
Figure 3.11. Hedge funds’ leverage was at
or near its highest level since data became
available Mean gross leverage
Mean balance sheet leverage
2014 2016 2018 2020 20 22 2024
Source: Securities and Exchange Commission,
porting Form for Investment Advisers to
Private Funds and Certain Commodity Pool Operators
and Commodity Trading Advisors.
Figure 3.12. Balance sheet leverage at the
15 largest hedge funds declined
Top 15, by GAV
16–50, by GAV
51+, by GAV
2014 2016 2018 2020 20 22 2024
Source: Securities and Exchange Commission,
porting Form for Investment Advisers to
Private Funds and Certain Commodity Pool Operators
and Commodity Trading Advisors.
Figure 3.13. Dealers indicated that the use of leverage by hedge funds remained largely unchanged
for most clients
Hedge funds
Trading REITs
Insurance companies
Mutual funds
2012 2014 2016 2018 2020 2022 2024
Net percentage
Source: Federal re serve bo ard, Senior Credit Officer Opinion Survey on Dealer Financing Terms.
34 F inancial Stability rep ort
The high level of leverage of hedge funds partly reflects elevated
U.S. Treasury cash-futures basis trading activity
As of the first quarter of 2024, data from Form PF showed that net repurchase agreement bor-
rowing, one measure of the Treasury cash-futures basis trade, edged down but still stood near
historical highs. Two other indicators, the leveraged funds’ short Treasury futures positions and a
basis trade proxy from Treasury T
CE, also declined in the first quarter but then showed lever-
age increasing again between April and September.14 This highly leveraged trade involves shorting
a Treasury futures contract and purchasing a Treasury note deliverable into that contract, with the
note typically financed in bilateral repurchase agreement markets. This trade was popular among
hedge funds between mid-2018 and February 2020, and its subsequent unwinding contributed to
the Treasury market turmoil in March 2020.
The volatility spike in early August, discussed earlier in the report, did not appear to have led to a
significant unwinding of the basis trade. Instead, that spike appeared to be related to some highly
leveraged hedge funds having to quickly deleverage other positions, largely to meet internal vola-
tility targets rather than because of margin or funding pressures from creditors. During this event,
liquidity in the Treasury market, as well as in other markets, deteriorated markedly, but market
conditions improved rapidly following favorable data releases the following week. Nevertheless,
this episode showed once again how high leverage can amplify adverse shocks.
Issuance of non-agency securities was strong
Non-agency securitization issuance—which increases the amount of leverage in the financial
system—was strong in the first three quarters of 2024 and was on pace to reach the sec-
ond-highest level observed in the past 15 years (figure 3.14 ).
15 Credit spreads on most major
securitized products generally decreased since the April report. The declines in the spreads were
most pronounced for lower-rated tranches of CM
eals, which suggested some improvement
in investor sentiment regarding CrE
. However, credit performance across securitized products
backed by riskier loan collateral generally showed signs of further deterioration. For instance, the
loan delinquency rate in CM
eals continued to increase, standing at close to 4.5 percent at
14 F or a discussion of the net repurchase agreement, Treasury futures, and T rA CE proxy measure of the Treasury
cash-futures basis trade, see Jonathan Glicoes,
njamin Iorio, Phillip Monin, and Lubomir Petrasek (2024), “Quan-
tifying Treasury Cash-Futures
sis Trades,” FEDS Notes (Washington:
ard of Governors of the Federal
System, March 8), https://www.federalreserve.gov/econres/notes/feds-notes/quantifying-treasury-cash-futures-
basis-trades-20240308.html . Data and reports on Treasury futures positions are available on the Commodity Futures
Trading Commission’s website at https://www.cftc.gov/Market
ports/CommitmentsofTraders/index.htm .
15 S ecuritization 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.
unding assets with debt issued by invest-
ment 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 CLOs (predominantly backed
by leveraged loans), asset-backed securities (often backed by credit card and auto debt), CM
, and residential
mortgage-backed securities.
L everage in the Financial Sector  35
the end of August. For consumer asset-backed securities (A bS ) deals, the delinquency rate for
auto AbS d
eals continued to trend up for both prime and subprime borrowers. Similarly, the loan
delinquency rate on credit card AbS d
eals increased, on balance, since the April report, standing
at the end of August at just over 1.5 percent.
Bank lending to nonbank financial institutions increased slightly
ba nk lending to nonbank financial institutions (N bF Is) can be informative about the amount of
leverage used by NbF
Is and shed light on the interconnectedness of these financial institutions
with the banking system. After the strong growth of 2021 and 2022, the four-quarter growth
rate of bank credit commitments to NbF
Is stepped down substantially in 2023, and a similar
lower pace of growth was observed through the end of the second quarter of 2024 (figure 3.15 ).
The four-quarter growth in committed amounts was largely due to loans to structured finance
Figure 3.14. The pace of issuance of securitized products in 2024 has been strong
Private- label RMBS
Non-agenc y CMBS
Auto loan/lease ABS
CDOs (including CLOs and ABS CDOs)
2003 2006 2009 2012 2 015 2018 2021 2024
3200Annual
Billions of dollar s (real)
Source: Green Street, Commercial Mortgage Alert’s CM bS D atabase and Asset- ba cked Alert’s AbS D atabase;
consumer price index,
reau of Labor Statistics via Haver Analytics.
Figure 3.15. Growth of bank credit commitments to nonbank financial institutions slowed in
recent quarters
1. Financial transactions processing
2. Private equity, BDCs, and credit funds
3. Broker-dealer s
4. Insurance companies
6. Open- end investment funds
7. Special purpose entities , CLOs, and ABS
8. Other ﬁnancial vehicles
9. Real estate lenders and lessors
2018 2020 2022 2024
2250Q2Quarterly
Billions of dolla rs
10. Consumer lenders, other lenders, and lessors
Source: Federal re serve bo ard, Form Fr  Y-14Q (Schedule H.1), Capital Assessments and Stress Testing.
36 F inancial Stability rep ort
vehicles—such as SPEs, CLOs, and AbS —and to open-end investment funds (figure 3.16). This
growth was partially offset by declines in commitments to financial transactions processing and
in commitments to
ITs. Delinquency rates on banks’ lending to NbF
Is continued to be very low,
but they have increased for real estate lenders and lessors in the second quarter of 2024 relative
Figure 3.16. Aggregate credit commitments to special purpose entities, collateralized loan
obligations, and asset-backed securities grew rapidly as commitments to real estate investment
trusts shrank between 2023:Q2 and 2024:Q2
Committed amounts
Utilized amounts
REITs Total
transactions
processing
investment
Source: Federal
ard, Form Fr
Y-14Q (Schedule H.1), Capital Assessments and Stress Testing.
4 Funding Risks
Vulnerabilities from funding risks remained notable
Funding risks for most banks remained low, but some banks’ reliance on less-stable forms of
funding remained a concern. On the asset side, large banks that are subject to the liquidity cover-
age ratio (LC
ontinued to maintain sound levels of high-quality liquid assets (HQLA).
Money market funds (MMFs) and other cash-management vehicles remained susceptible to runs
owing to structural vulnerabilities. The recent SEC MMF reforms made prime and tax-exempt
MMFs more resilient, but government MMFs and other short-term investment funds that were not
covered by the SEC reforms have continued to grow.
Some open-end bond mutual funds remained vulnerable to significant withdrawals, as they are
required to permit daily redemptions despite holding assets that can suffer losses and become
illiquid under stress. Meanwhile, life insurers continued to be exposed to funding risks due to
their reliance on funding from nontraditional liabilities.
In total, estimated runnable money-like financial liabilities increased about 7.5 percent over the
past year, surpassing $22 trillion. This growth was mostly driven by an increase in assets under
management (AUM) at domestic MMFs and in repurchase agreements. As a percentage of GDP,
runnable liabilities have been relatively stable at 76 percent, a level around the historical median
(see table 4.1 and figure 4.1).
Reliance on funding from uninsured deposits decreased for most
banks, but reliance on other types of funding—less stable than core
insured deposits—increased
Aggregate liquidity in the banking system remained sound, as HQLA measured relative to total
assets was still at or above pre-pandemic levels at most banks (figure 4.2). Moreover, U.S.
eld, on average, 18 percent more HQLA than required by their LC r—
the requirement
that ensures banks hold sufficient HQLA to fund estimated cash outflows for 30 days during a
hypothetical stress event—an amount that is a little below that of a year ago. Other banks that
are required to meet minimum LC
requirements, those in Categories II and III, also continued
to maintain a reasonable amount of HQLA above requirements, despite their HQLA levels being
somewhat lower than a year ago. As of the end of the third quarter, banks in Categories I, II,
and III had about 20 percent of HQLA booked in HTM accounts. Securities held in HTM accounts
are accounted at book value when used in the calculation of regulatory capital and book equity,
but they are valued for LC
purposes at fair value, and therefore fluctuations in the value of these
38 F inancial Stability rep ort
Table 4.1. Size of selected instruments and institutions
Item Outstanding/total assets
(billions of dollars)
2023:Q2–2024:Q2
Average annual growth,
1997–2024:Q2
Total runnable money-like liabilities1 22,078 7.6 4.9
Uninsured deposits 6,716 .9 10.8
Domestic money market funds2 6,053 12.7 6.2
Government 4,893 9.7 15.2
Prime 1,032 29.4 3.1
Tax exempt 128 14.4 −1.1
Repurchase agreements 4,963 9.8 5.9
Commercial paper 1,295 8.7 2.8
Securities lending3 995 5.1 7.3
Bond mutual funds 4,525 6.2 8.0
Note: The data extend through 2024:Q2 unless otherwise noted. Outstanding amounts are in nominal terms. Growth
rates are nominal and are measured from Q2 of the year immediately preceding the period through Q2 of the ﬁnal year
of the period. Total runnable money-like liabilities exceed the sum of listed components. Unlisted components of run-
nable money-like liabilities include variable-rate demand obligations, federal funds, funding-agreement-backed securi-
ties, private liquidity funds, offshore money market funds, short-term investment funds, local government investment
pools, and stablecoins.
1 Average annual growth is from 2003:Q1 to 2024:Q2.
2 Average annual growth is from 2001:Q1 to 2024:Q2.
3 Average annual growth is from 2000:Q1 to 2024:Q1. Securities lending includes only lending collateralized by cash.
Source: Securities and Exchange Commission, Private Funds Statistics; iMoneyNet, Inc., Offshore Money Fund Ana-
lyzer; Bloomberg Finance L.P .; Securities Industry and Financial Markets Association: U.S. Municipal Variable-Rate
Demand Obligation Update; DTCC Solutions LLC, an afﬁliate of the Depository Trust & Clearing Corporation: commer-
cial paper data; Federal Reserve Board staff calculations based on Risk Management Association, Securities Lending
Report; Markit Securities Finance; Investment Company Institute; 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; Llama Corp, DeFiLlama.
Figure 4.1. Ratio of runnable money-like liabilities to GDP remained around its historical median
2. Securities lending
3. Commercial paper
4. Domestic money market funds
5. Repurchase agreements
6. Uninsured deposit s
2003 2006 2009 2012 2 015 2018 2021 2024
Percent of GDP
Source: Securities and Exchange Commission, Private Funds Statistics; iMoneyNet, Inc., Offshore Money Fund
oomberg Finance L.P.; Securities Industry and Financial Markets Association: U.S. Municipal
te Demand Obligation Update; DTCC Solutions LLC, an affiliate of the Depository Trust & Clearing Corporation:
commercial paper data; Federal
ard staff calculations based on
sk Management Association,
Securities Lending
port; Markit Securities Finance; Investment Company Institute; Federal
Statistical re
lease Z.1, “Financial Accounts of the United States”; Federal Financial Institutions Examination Council,
Consolidated
ports of Condition and Income (Call
port); gross domestic product,
reau of Economic Analysis
via Haver Analytics; Llama Corp, DeFiLlama.
F unding ri sks 39
securities will affect banks’ LCr  levels. HTM securities can be pledged at the Federal re serve
discount window or in repurchase agreements at their market value, but banks cannot sell any
of those assets outright without allowing losses (or gains) on the whole HTM portfolio to flow
through to equity.
During the March 2023 banking-sector stresses, high reliance on funding from uninsured depos-
its was a key vulnerability among some of the most affected banks, including those that failed.
Since then, the share of uninsured deposits relative to total bank funding has decreased for
most banks, especially at those that previously relied heavily on uninsured deposits. However, a
significant portion of the decrease in funding from uninsured deposits was replaced by short-term
nondeposit funding at large banks and by brokered and reciprocal deposits at regional and com-
munity banks. Most brokered and reciprocal
deposits in the banking system are insured,
but the stability of this type of funding during
periods of stress may be lower than that of
traditional core insured deposits.
reliance on short-term wholesale funding
increased further over the first half of the year
and is concentrated at some of the very larg-
est banks (figure 4.3). Although such funding
can become expensive or unreliable during
periods of market stress, the levels remain
much lower than they were before the 2007–
09 financial crisis, and post-crisis reforms,
such as the LC
requirement, are intended to
limit the spillovers from such an event.
Figure 4.2. The share of high-quality liquid assets to total assets remained above pre-pandemic levels
Large non–G-SIBs
Other BHCs
2003 2006 2009 2012 2 015 2018 2021 2024
Percent of assets
Source: Federal re serve bo ard, Form Fr  Y-9C, Consolidated Financial Statements for Holding Companies.
Figure 4.3. Banks’ reliance on short-term
wholesale funding stayed low but increased
further since 2023:Q4
2000 2004 2008 2012 2016 2020 20 24
Percent of assets
Source: Federal re serve bo ard, Form Fr  Y-9C,
Consolidated Financial Statements for Holding
Companies.
40 F inancial Stability rep ort
Money market funds and other cash-management vehicles remained
susceptible to runs owing to structural vulnerabilities
Assets managed by MMFs increased since the April report to more than $6.25 trillion by the end
of August, as MMFs continued to provide more attractive yields relative to most bank deposits,
but at a slower pace than in 2023 (figure 4.4). More than 80 percent of those assets are in funds
that only hold securities that are guaranteed by the U.S. government.
forms for MMFs adopted last year by the SEC went fully into effect in October 2024. These
reforms represent significant progress in making institutional prime and tax-exempt MMFs more
resilient, although these funds remain vulnerable to runs in periods of significant stress. AUM in
prime MMFs rose 7 percent year-to-date through August, as retail prime funds grew while AUM at
their institutional counterparts declined significantly.
Other cash-management vehicles, such as dollar-denominated offshore MMFs and short-term
investment funds, also invest in money market instruments and engage in liquidity transforma-
16 Since the April report, estimated aggregate AUM of these cash-management vehicles
increased further to $2.1 trillion, with between $0.75 trillion and $1.8 trillion of these vehicles’
AUM being currently invested in assets that are similar to those in portfolios of U.S. prime MMFs.
Many of these cash-management vehicles—including retail and government MMFs, offshore
MMFs, and short-term investment funds—seek to maintain stable net asset values that are
typically rounded to $1.00. If 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 and
trigger large, concurrent redemptions, which can put the funds under strain and destabilize short-
term funding markets.
16 C ash-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.
Figure 4.4. Assets under management at money market funds increased to an all-time high in August
1. Government
2. Tax exempt
3. Retail prime
4. Instituti onal prime
2000 2004 2008 2012 2016 2020 2024
7000Aug.Monthly
Billions of dollar s (real)
Source: Federal re serve bo ard staff calculations based on Investment Company Institute data; consumer price
reau of Labor Statistics via Haver Analytics.
F unding ri sks 41
Stablecoins grew substantially and remained vulnerable to runs
Stablecoin assets—digital assets designed to maintain a stable value relative to a national
currency or another reference asset—grew substantially since the April report. 17 The total mar-
ket capitalization of stablecoins was more than $170 billion by the beginning of November, just
a notch below the record high observed in April 2022 before Terra’s collapse (figure 4.5). These
digital assets are structurally vulnerable to runs and lack a comprehensive federal prudential reg-
ulatory framework. Stablecoins still have a relatively small footprint in the U.S. economy, but have
experienced strong growth in recent years and have the potential to scale rapidly.
Bond mutual funds’ asset holdings increased in 2024
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 daily redemptions. Mutual funds held approximately
$1.3 trillion of corporate bonds as of the second quarter of 2024, which represents a sizable
share—about 13 percent—of corporate bonds outstanding (figure 4.6). Total AUM of the subcat-
egories of mutual funds holding high-yield bonds and bank loans, which primarily hold riskier and
less liquid assets, edged up in recent months (figure 4.7). As significant investors in the bond and
loan markets, substantial outflows from these funds or other disruptions in their ability to support
the functioning of underlying markets can in turn lead to strains among the firms that borrow in
these markets. In recent quarters, net inflows—which represent the net new funds available to
borrowers—have been subdued (figure 4.8 ).
17 T o back the coins, stablecoins hold a pool of assets that, among other assets, contain a large amount of
U.S. Treasury bills.
Figure 4.5. Market capitalization of major stablecoins grew significantly this year to near its previous peak
2. TerraUSD
4. Binance USD
5. USD Coin
Feb. MayA ug.N ov.F eb.M ay Aug. Nov.F eb.M ay Aug. Nov.F eb.M ay Aug. Nov.
Billions of dolla rs
2021 2022 2023 2024
Source: Llama Corp, DeFiLlama.
42 F inancial Stability rep ort
Figure 4.8. Mutual fund flows were solid in early 2024 but have dissipated
Investment-grade bond mutual funds
Bank loan mutual funds
High-yield bond mutual funds
Mar. Sept.M ar.S ept. Mar. Sept.M ar.S ept. Mar. Sept.M ar.S ept. Mar. Sept.M ar.S ept.
150Monthly
Billions of dolla rs
2017 2018 2019 2020 20 21 2022 2023 2024
Source: Investment Company Institute.
Figure 4.6. Corporate bonds held by bond mutual funds remained stable in the first half of 2024
2000 2004 2008 2012 2016 2020 2024
Billions of dollar s (real)
Source: Federal re serve bo ard staff estimates based on Federal re serve bo ard, Statistical re lease Z.1, “Financial
Accounts of the United States”; consumer price index,
reau of Labor Statistics via Haver Analytics.
Figure 4.7. Assets held by bank loan and high-yield mutual funds moved up in the first half of 2024
Bank loan mutual funds
High-yield bond mutual funds
2000 2004 2008 2012 2016 2020 2024
Billions of dollar s (real)
Source: Investment Company Institute; consumer price index, bu reau of Labor Statistics via Haver Analytics.
F unding ri sks 43
Central counterparties’ initial margin levels and prefunded
mutualized resources remained high and stable
Central counterparties’ (CCPs) initial margin levels remained high and stable during the first half
of 2024. CCPs also maintained high levels of prefunded mutualized resources. Elevated initial
margins and ample overall prefunded resources work together to create a relatively low vulnerabil-
ity at CCPs to a potential default by a clearing member or market participant.
18 These two factors
also reduce the possibility of large liquidity demands from a CCP to its credit providers (usually
banks). Consistent with the high levels of initial margin and prefunded resources that they main-
tain, CCPs operated normally during the volatility spike in early August. Nevertheless, the concen-
tration of clients at the largest clearing members is a vulnerability, because this concentration
could make transferring client positions to other clearing members challenging if such a transfer
were ever necessary.
Life insurers’ reliance on funding from nontraditional liabilities
remained higher than average
Over the past decade, life insurers have increased their reliance on funding from nontraditional
liabilities, including funding-agreement-backed securities and cash received through repurchase
agreements and securities lending transactions (figure 4.9). These liabilities can create liquidity
18 P refunded 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, which builds the resilience of
CCPs to the possible default of a clearing member or market participant.
Figure 4.9. Life insurers’ reliance on nontraditional liabilities for funding increased further in the first
half of 2024
Repurchase agreements
Securities lending cash collateral
FHLB advances
Funding-ag reement-backed securities
2006 2008 20102 0122 0142 0162 0182 0202 0222 024
Billions of dollar s (real)
Source: Consumer price index, bu reau of Labor Statistics via Haver Analytics; Moody’s Analytics, Inc., Credit vi ew,
cked 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;
oomberg Finance L.P.
44 F inancial Stability rep ort
risk through withdrawals or the inability to roll over funding if invested proceeds are not appropri-
ately matched. The steady decline in the liquidity of life insurers’ assets (figure 4.10), in con-
junction with a greater use of nontraditional liabilities, makes it potentially more difficult for life
insurers to be able to meet a sudden rise in withdrawals and other claims.
Figure 4.10. Life insurers continued to hold a significant share of risky and illiquid assets on their
balance sheets
1. Other ABS
2. CRE loans
3. CRE loans, securitize d
4. Alternative investments
5. Illiquid corporate debt
6. Illiquid corporate debt,
Share of life insurer assets (left scale)
Share of P&C insurer
assets (left scale)
2007 2009 2011 2013 2015 2017 2019 2021 2023
3000Billions of dolla rsPercent share
securitized
Source: Consumer price index, bu reau of Labor Statistics via Haver Analytics; Federal re serve bo ard staff
estimates based on data from
oomberg Finance L.P. and National Association of Insurance Commissioners Annual
Statutory Filings.
Near-Term Risks to the Financial
The Federal res erve routinely engages in discussions with domestic and international policy-
makers, academics, community groups, and others to gauge the set of risks of greatest concern
to these groups. As noted in the box “Survey of Salient risk
s to Financial Stability,” in recent
outreach, significantly fewer respondents noted risks associated with a resurgence in inflation
and further monetary tightening than had done so in the spring survey. Instead, contacts focused
on risks associated with U.S. fiscal debt sustainability, Middle East tensions, and generalized
policy uncertainty.
The following discussion considers possible interactions of existing domestic vulnerabilities with
several potential near-term risks, including international risks.
A worsening of global geopolitical tensions could lead to broad
adverse spillovers
Conflict in the Middle East and rus sia’s ongoing war against Ukraine pose risks to global
economic activity, including the possibility of sustained disruptions to energy and commodity
markets and global value chains. Further escalation of geopolitical tensions could reduce eco-
nomic activity, boost inflation, and heighten volatility in global financial markets. The current
combination of relatively high asset valuation pressures and heightened geopolitical and policy
uncertainty increases the risk of a sudden pullback from risk-taking. These developments could
lead to declines in asset prices and losses for exposed businesses and investors, including those
in the U.S.
A marked slowdown in economic growth, domestically or abroad,
could pose risks for U.S. markets and financial institutions
In the U.S., unexpectedly weak economic activity could trigger sharp corrections in asset prices,
especially in equities and real estate, where valuations are elevated. Financial stress could be
amplified by high leverage within certain N
s, as the rapid unwinding of positions could create
liquidity imbalances and increase market volatility. If CrE fu
ndamentals deteriorated further, it
could lead to significant losses for exposed financial intermediaries, reducing their ability to
supply credit to the economy and further weigh on economic activity.
In addition, a sharp economic downturn in advanced foreign economies or China could prompt
a pullback of investors from riskier assets, leading to heightened volatility and broader stress
46 F inancial Stability rep ort
across global financial markets. Elevated public debt levels in many advanced economies, includ-
ing the U.S., may limit governments’ ability to respond to weaker growth. Concerns about fiscal
deterioration could, in turn, put upward pressure on long-term interest rates that could further
damp growth and strain sovereign and private-sector borrowers. In China, residential real estate
prices continue to fall, potentially putting further pressure on the highly indebted property sector.
Fiscal stimulus measures have been announced there, but uncertainty remains about their effec-
tiveness in meaningfully strengthening domestic demand.
Shocks caused by cyber events could impair the U.S. financial system
The risk of cyberattacks has grown amid increased geopolitical tensions and rapid advance-
ments in artificial intelligence. In addition to malicious attacks, nonmalicious cyber events, such
as software malfunctions at key third-party service providers, have demonstrated the potential
to cause significant disruptions. Shocks caused by cyber events, especially cyberattacks, may
propagate through the financial system through complex interdependencies among financial
institutions, market infrastructure, and service providers. When these channels are sufficiently
systemic, cyber shocks can disrupt payments or other operational components of the financial
system. The propagation of more severe cyber shocks could also be amplified by existing vulnera-
bilities in the financial system—for example, by triggering funding runs or asset fire sales.
U.S. government agencies, including financial regulators, are taking steps to further protect the
financial system and financial infrastructures from cyber risks and their effects.
N ear-Term ri sks to the Financial System  47
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 solic-
ited views from a wide range of contacts on risks to U.S. fi  nancial stability. From late August to
late October, the staff surveyed 24 contacts, including professionals at broker-dealers, investment
funds, research and advisory fi  rms, and academics (fi g u r e  A). This section is a summary of the views
provided by survey respondents and should not be interpreted as representing the views of the
Federal reserve bank of New York or the Federal reserve board.
Concerns surrounding U.S. fi  scal debt sustainability were atop the list this survey, followed by esca-
lating tensions in the Middle East and policy uncertainty, which was also frequently cited in the last
survey (fi g u r e  b). Contacts also ﬂ  agged the risk of a U.S. recession near the top of the list. The risk of
persistent inﬂ  ationary pressures and the implications of a restrictive monetary policy stance, which
had been the top-cited risk in fi  ve out of the previous six surveys, including the last cycle, was less
frequently cited this round. respondents noted risks surrounding global trade more frequently this
cycle than in the previous survey. A correction in risky asset prices as well as renewed stress in the
banking sector, which were noted in the spring survey, continued to be cited but not as prominently.
While not as frequently cited as other risks, further weakness in the Chinese economy and the poten-
tial for a cyberattack on a fi  nancial institution were seen as carrying some of the most severe conse-
quences should either of them materialize.
U.S. fiscal debt sustainability
Concerns over U.S. fi  scal debt sustainability was the top-cited risk. It was noted that increased Trea-
sury issuance could begin to crowd out private investment or constrain policy responses in an eco-
nomic downturn.
Middle East tensions
respondents noted the most immediate risk in Middle East tensions would be a widening of the con-
ﬂ  ict within the region, with some highlighting a tail risk that it could become a global conﬂ  ict. Disrup-
tions to energy supplies, and potentially broader commodity markets, are seen as the main channels
impacting fi  nancial stability.
Policy uncertainty
respondents continued to see policy uncertainty as a risk, though it was cited less often relative to
the last survey. Contacts noted elevated policy uncertainty can depress sentiment. The need to raise
the federal debt limit next year was specifi  cally cited by respondents as a potential watchpoint.
U.S. recession
Contacts cited the potential for a U.S. economic downturn more often than in the previous survey.
It was noted by some respondents that there may be more underlying weakness in the labor market
than currently believed.
Persistent inflation and monetary tightening
Elevated inﬂ  ation and the implications of tighter monetary policy, which had been the top-cited risk
recently, was less cited this round. The respondents who continued to ﬂ  ag it as a risk noted that
while the inﬂ  ation data had improved, there continued to be some chance that it would take longer
than expected to return to a dual-mandate-consistent level.
(continued)
48 F inancial Stability rep ort
Risks to global trade
risks to global trade were specifi  cally cited in this survey, with some respondents noting the poten-
tial for tariff barriers to prompt retaliatory protectionist policies that would negatively affect global
trade ﬂ  ows and put renewed upward pressure on inﬂ  ation. Others noted that a deterioration in global
trade could depress economic activity and raise the risk of a downturn. respondents noted this risk
was global in nature, highlighting that Chinese policy decisions could spur more protectionist mea-
sures elsewhere and that developments like the French elections earlier this year could increase
isolationism.
Box 5.1—continued
Figure A. Fall 2024: Most cited potential shocks over the next 12 to 18 months
U.S. ﬁscal debt sustainability
Middle East tensions
Policy uncertainty
U.S. recession
Risks to global trade
Persistent inﬂation/uni003B monetary tightening
Risk asset/valuations correction
Cyberat tacks
Russia–Ukraine war
Banking-sector stres s
Chinese economic weakness
Market liquidity strains and volat ility
Commercial and residential real estate
01 02 03 04 05 06 07 0
Percentage of respondents
Source: Federal reserve bank of New York survey of 24 market contacts from August to October.
Figure B. Spring 2024: Most cited potential shocks over the next 12 to 18 months
Persistent inﬂation/uni003B monetary tightening
Policy uncertainty
Commercial and residential real estate
Banking-sector stres s
Fiscal debt sustainability
Market liquidity strains and volat ility
Treasury market dysfunction/basis trade
U.S.–China tensions
Middle East tensions
Cyberattacks
Severe U.S./global recession
01 02 03 04 05 06 07 08 0
Percentage of respondents
Source: Federal reserve bank of New York survey of 25 market contacts from January to March.
Figure Notes
Figure 1.1. Nominal Treasury yields fell but remained high
Treasury rates are the 2-year and 10-year constant maturity yields based on the most actively
traded securities.
Figure 1.2. An estimate of the nominal Treasury term premium was near the top of its range
since 2010
Term premiums are estimated from a 3-factor term structure model using Treasury yields and
Chip interest rate forecasts.
Figure 1.3. Interest rate volatility remained well above its median since 2005
The data begin in April 2005. Implied volatility on the 10-year swap rate, 1 month ahead, is
derived from swaptions.
Figure 1.4. The price-to-earnings ratio of S&P 500 firms climbed to the upper end of its
historical range
The figure shows the aggregate forward price-to-earnings ratio of Standard & Poor’s (S&P) 500
firms, based on expected earnings for 12 months ahead.
Figure 1.5. An estimate of the equity premium remained well below its long-run median
The data begin in October 1991. The figure shows the difference between the aggregate forward
earnings-to-price ratio of Standard and Poor’s 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.
Figure 1.6.
atility in equity markets remained near its historical median
lized volatility is computed from an exponentially weighted moving average of 5-minute daily
realized variances with 75 percent of the weight distributed over the past 20 business days.
Median refers to the median option-implied volatility.
Figure 1.7. Corporate bond yields fell somewhat and were near their median for the past 30 years
The triple-b s
eries reflects the effective yield of the ICE ban
k of America Merrill Lynch (bof
triple-b U
.S. Corporate Index (C0A4), and the high-yield series reflects the effective yield of the
AML U.S. High Yield Index (H0A0).
Figure 1.8. Corporate bond spreads went down a little and were at low levels
The triple-
eries reflects the option-adjusted spread of the ICE ban
k of America Merrill
Lynch (bof
AML) triple-b U
.S. Corporate Index (C0A4), and the high-yield series reflects the
option-adjusted spread of the ICE bof
AML U.S. High Yield Index (H0A0).
50 F inancial Stability rep ort
Figure 1.9. The excess bond premium remained just below its long-run average
The excess bond premium (E
) 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.
onstruction, its historical mean is zero. Positive (negative)
alues indicate that investors’ risk appetite is below (above) its historical mean.
Figure 1.10. Spreads on leveraged loans stayed moderately below their averages over the
past decade
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.
rated spreads
begin in July 1997. The black dashed line represents the data transitioning from monthly to
weekly in November 2013.
Figure 1.11. 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 1.12. On-the-run market depth continued to be below historical norms
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. OT
is on-the-run.
Figure 1.13. A measure of liquidity in equity markets remained below its average
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 Standard & Poor’s 500 futures.
Figure 1.14. Commercial real estate prices adjusted for inflation were little changed
The data are deflated using the consumer price index. The dashed line at 100 indicates the index
to January 2001 values.
Figure 1.15. Income of commercial properties relative to prices increased but remained below its
historical average
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.
nks reported having tightened lending standards for commercial real estate loans
nks’ responses are weighted by their commercial real estate loan market shares. Sur-
vey respondents to the Senior Loan Officer Opinion Survey on
nk Lending Practices are
asked about the changes over the quarter. The shaded bars with top caps indicate periods of
business recession as defined by the National
reau of Economic
search: March 2001–
November 2001, December 2007–June 2009, and February 2020–April 2020.
Figure 1.17. Nominal house prices continued to increase in recent months
The data extend through September 2024 for Zillow, August 2024 for CoreLogic, and July 2024
for Case-Shiller.
F igure Notes 51
Figure 1.18. Model-based measures of house price valuations climbed to historically high levels
The owners’ equivalent rent value for 2024:Q3 is based on monthly data through August 2024.
The data for the market-based rents model begin in 2004:Q1 and extend through 2024:Q3.
ation is measured as the deviation from the long-run relationship between the price-to-rent ratio
and the real 10-year Treasury yield.
Figure 1.19. 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 1.20. Inflation-adjusted farmland prices rose further from already-elevated levels
The data for the U.S. begin in 1997. Midwest index is a weighted average of Corn
Great Plains states derived from staff calculations.
lues are given in real terms.
Figure 1.21. Farmland prices relative to rents increased to historical highs
The data for the U.S. begin in 1998. Midwest index is a weighted average of Corn
Great Plains states derived from staff calculations.
Figure 2.1. The total debt of businesses and households relative to GDP declined to its lowest
level in 20 years
The shaded bars with top caps indicate periods of business recession as defined by the National
reau of Economic
search: 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.
th business and household debt-to-GDP ratios continued to edge down
The shaded bars with top caps indicate periods of business recession as defined by the National
reau of Economic
search: 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.
siness debt adjusted for inflation grew 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). For 2024:Q3, the value corresponds to preliminary data.
Figure 2.5. Gross leverage of large businesses stayed high by historical standards
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 2019:Q1 reflect the structural break in the series
52 F inancial Stability rep ort
due to the 2019 compliance deadline for Financial Accounting Standards bo ard rule Accounting
Standards Update 2016-02. The accounting standard requires operating leases, previously con-
sidered off-balance-sheet activities, to be included in measures of debt and assets.
Figure 2.6. Interest coverage ratios, which indicate firms’ ability to service their debt, have
changed little
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. New leveraged loans with debt multiples greater than 4 have been near their lowest
levels in a decade
lumes are for large corporations with earnings before interest, taxes, depreciation, and amor-
tization 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 2.8. The default rate on leveraged loans remained well below its previous peaks
The data begin in December 1998. The data including distressed exchanges begin in Decem-
ber 2016. The default rate is calculated as the amount in default over the past 12 months divided
by the total outstanding volume of loans that are not in default at the beginning of the 12-month
period. The default rate including distressed exchanges is calculated as the number of issuers in
default or distressed exchange over the past 12 months divided by the total number of issuers
that are not in default at the beginning of the 12-month period. The shaded bars with top caps
indicate periods of business recession as defined by the National
reau of Economic
March 2001–November 2001, December 2007–June 2009, and February 2020–April 2020.
Figure 2.9. Inflation-adjusted household debt has been little changed
Subprime are those with an Equifax
sk Score less than 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 2024 dollars using the consumer price index.
Figure 2.10. A model-based estimate of housing leverage stayed significantly below its
peak levels
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 close to the low end of their historical
distribution
Loss mitigation includes tradelines that have a narrative code of forbearance, natural disaster,
payment deferral (including partial), loan modification (including federal government plans), or
F igure Notes 53
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 declined across all borrower categories
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
sk Score less
than 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 2024 dollars using the consumer price index. The
key identifies bars in order from left to right.
Figure 2.14. Inflation-adjusted consumer credit has been about flat since late last year
The data are converted to constant 2024 dollars using the consumer price index. Student loan
data begin in 2005:Q1.
Figure 2.15. Average maturity of auto loans at origination for used cars remained elevated
The data are seasonally adjusted. Loans for used auto vehicles only. Subprime are those with a
ntageScore less than 601; near prime are from 601 to 660; prime are greater than 660.
Figure 2.16. Auto loan delinquencies have been somewhat above normal levels
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
sk Assessment, Data Analysis, and
Data Warehouse until 2017, after which they are reported quarterly. The data are seasonally
Figure 2.17. Inflation-adjusted credit card balances for subprime borrowers trended higher but
remained well below previous peaks
Subprime are those with an Equifax
sk Score less than 620; near prime are from 620 to 719;
prime are greater than 719. Scores are measured contemporaneously. The data are converted to
constant 2024 dollars using the consumer price index.
Figure 2.18. Credit card delinquencies rose further to somewhat above their pre-pandemic levels
Delinquency measures the fraction of balances that are at least 30 days past due, excluding
severe derogatory loans, which are delinquent and have been charged off, foreclosed, or repos-
sessed by the lender. The data are seasonally adjusted.
Figure 3.1.
nks maintained sound net interest margins
Average interest rate on interest-earning assets is total interest income divided by total inter-
est-earning assets. Average interest expense rate on liabilities is total interest expense divided
by total liabilities. The shaded bar with a top cap indicates a period of business recession as
defined by the National
reau of Economic
search: February 2020–April 2020.
Figure 3.2.
nks’ average risk-based capital ratios were above pre-pandemic levels
The data are seasonally adjusted by Federal
ard staff. The sample consists of domes-
tic bank holding companies (bH
Cs) and intermediate holding companies (IHCs) with a substan-
tial U.S. commercial banking presence. G-SI bs a
re global systemically important banks. Large
54 F inancial Stability rep ort
non–G-SI bs a re bH Cs and IHCs with greater than $100 billion in total assets that are not G-SI bs .
fore 2014:Q1 (advanced-approaches
HCs) or before 2015:Q1 (non-advanced-approaches
Cs), 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
reau of Economic
search: March 2001–November 2001, December 2007–June 2009, and
February 2020–April 2020.
Figure 3.3. The fair value losses of banks’ securities portfolios remained sizable
The figure plots the difference between the fair and amortized cost values of the securities. The
sample consists of all bank holding companies and commercial banks.
Figure 3.4. The ratio of tangible common equity to tangible assets increased for banks of all
categories
The data are seasonally adjusted by Federal
ard staff. The sample consists of
domestic bank holding companies (bH
Cs), intermediate holding companies (IHCs) with a sub-
stantial U.S. commercial banking presence, and commercial banks. G-SI bs a
re global system-
ically important banks. Large non–G-SI bs a
Cs and IHCs with greater than $100 billion in
total assets that are not G-SI bs
nk equity is total equity capital net of preferred equity and
intangible assets.
nk assets are total assets net of intangible assets. The shaded bars with
top caps indicate periods of business recession as defined by the National
reau of Economic
search: July 1990–March 1991, March 2001–November 2001, December 2007–June 2009,
and February 2020–April 2020.
Figure 3.5. The financial condition of firms with commercial and industrial bank loans
remained sound
The figure shows the weighted median leverage of nonfinancial firms that borrow using commer-
cial and industrial loans from the 24 banks that have filed in every quarter since 2013:Q1. Lever-
age 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. Credit standards for commercial and industrial loans were little changed in the first
half of 2024
nks’ responses are weighted by their commercial and industrial loan market shares. Survey
respondents to the Senior Loan Officer Opinion Survey on
nk Lending Practices are asked
about the changes over the quarter.
sults 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
reau of Economic
search: March 2001–November 2001, December 2007–June 2009, and
February 2020–April 2020.
Figure 3.7. Leverage at broker-dealers remained near historical lows
Leverage is calculated by dividing total assets by equity.
F igure Notes 55
Figure 3.8. Trading profits in the first half of 2024 were within the range of the past 5 years
The sample includes all trading desks of bank holding companies subject to the
lcker rule
reporting requirement.
Figure 3.9. The current distribution of the sources of broker-dealer trading profits was in line with
recent averages
The sample includes all trading desks of bank holding companies subject to the
lcker 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 3.10. Leverage at life insurers remained above the average observed in the previous
atio 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. Hedge funds’ leverage was at or near its highest level since data became available
Means are weighted by net asset value (NA
. On-balance-sheet leverage is the ratio of gross
asset value to NAv. G
ross leverage is the ratio of gross notional exposure to NAv. G
ross notional
exposure includes both on-balance-sheet exposures and off-balance-sheet derivative notional
exposures. Options are delta adjusted, and interest rate derivatives are reported at 10-year bond
equivalent values. The data are reported on a 2-quarter lag beginning in 2013:Q1.
Figure 3.12.
lance sheet leverage at the 15 largest hedge funds declined
Leverage is measured by gross asset value (GAv) d
ivided by net asset value (NAv)
. Funds are
sorted into cohorts based on GA v. A
verage leverage is computed as the NAv-
weighted mean. The
data are reported on a 2-quarter lag beginning in 2013:Q1.
Figure 3.13. Dealers indicated that the use of leverage by hedge funds remained largely
unchanged for most clients
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.
IT is real estate investment trust.
Figure 3.14. The pace of issuance of securitized products in 2024 has been strong
The data from the third quarter of 2024 are annualized to create the 2024 bar.
s residen-
tial mortgage-backed securities; CM bS i
s commercial mortgage-backed securities; CDO is col-
lateralized debt obligation; CLO is collateralized loan obligation. The “other” category consists of
other asset-backed securities (A
) backed by credit card debt, student loans, equipment, floor
plans, and miscellaneous receivables; resecuritized real estate mortgage investment conduit
. The data are converted to constant 2024 dollars using
the consumer price index. The key identifies bars in order from top to bottom.
56 F inancial Stability rep ort
Figure 3.15. Growth of bank credit commitments to nonbank financial institutions slowed in
recent quarters
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 F
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 (
ITs), spe-
cial purpose entities, collateralized loan obligations (CLOs), and asset-backed securities (AbS
C is business development company.
ITs incorporate both mortgage (trading)
oker-dealers also include commodity contracts dealers and brokerages and other
securities and commodity exchanges. Other financial vehicles include closed-end investment and
mutual funds.
Figure 3.16. Aggregate credit commitments to special purpose entities, collateralized loan obliga-
tions, and asset-backed securities grew rapidly as commitments to real estate investment trusts
shrank between 2023:Q2 and 2024:Q2
The figure shows 2024:Q2-over-2023:Q2 growth rates as of the end of the second quarter
IT is real estate investment trust; PE is private equity;
C is business development
company; SPE is special purpose entity; CLO is collateralized loan obligation; A bS i
s asset-backed
securities. The key identifies bars in order from left to right.
Figure 4.1.
atio of runnable money-like liabilities to GDP remained around its historical median
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 (
Os), federal funds, funding-agreement-backed securities,
private liquidity funds, offshore money market funds, short-term investment funds, local govern-
ment investment pools, and stablecoins. Securities lending includes only lending collateralized
by cash. GDP is gross domestic product.
Os come from
omberg beginning
in 2019:Q1. See Jack
o, Josh David, and Song Han (2015), “The
nnables,” FEDS Notes
(Washington:
ard of Governors of the Federal
serve System, September 3), https:/ /www.
federalreserve.gov/econresdata/notes/feds-notes/2015/the-runnables-20150903.html.
Figure 4.2. The share of high-quality liquid assets to total assets remained above
pre-pandemic levels
The sample consists of domestic bank holding companies (
Cs), intermediate holding compa-
nies (IHCs) with a substantial U.S. commercial banking presence, and commercial banks. G-SI bs
re global systemically important banks. Large non–G-SI bs a
Cs and IHCs with greater than
$100 billion in total assets that are not G-SIbs
. Liquid assets are cash plus estimates of securi-
ties that qualify as high-quality liquid assets as defined by the Liquidity Coverage
atio require-
ment. Accordingly, Level 1 assets as well as discounts and restrictions on Level 2 assets are
incorporated into the estimate.
F igure Notes 57
Figure 4.3. ba nks’ reliance on short-term wholesale funding stayed low but increased further
since 2023:Q4
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 revalu-
ation 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
reau of Economic
search: March 2001–November 2001, December 2007–June 2009, and
February 2020–April 2020.
Figure 4.4. Assets under management at money market funds increased to an all-time high
The data are converted to constant 2024 dollars using the consumer price index.
Figure 4.5. Market capitalization of major stablecoins grew significantly this year to near its
previous peak
The key identifies series in order from top to bottom.
Figure 4.6. Corporate bonds held by bond mutual funds remained stable in the first half of 2024
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 2024 dollars using the consumer
price index.
Figure 4.7. Assets held by bank loan and high-yield mutual funds moved up in the first half
The data are converted to constant 2024 dollars using the consumer price index. The key identi-
fies series in order from top to bottom.
Figure 4.8. Mutual fund flows were solid in early 2024 but have dissipated
Mutual fund assets under management as of September 2024 included $2,403 billion in
investment-grade bond mutual funds, $268 billion in high-yield bond mutual funds, and $80 bil-
lion in bank loan mutual funds.
nk loan mutual funds, also known as floating-rate bond funds,
are excluded from high-yield bond mutual funds.
Figure 4.9. Life insurers’ reliance on nontraditional liabilities for funding increased further in the
first half of 2024
The data are converted to constant 2024 dollars using the consumer price index. FHL
is Federal
nk. The data are annual from 2006 to 2010 and quarterly thereafter. The key iden-
tifies bars in order from top to bottom.
Figure 4.10. Life insurers continued to hold a significant share of risky and illiquid assets on their
balance sheets
The data are converted to constant 2023 dollars using the consumer price index. Securitized
products include collateralized loan obligations for corporate debt, private-label commercial
58 F inancial Stability rep ort
mortgage-backed securities for commercial real estate (C rE ), and private-label residential
mortgage-backed securities and asset-backed securities (A bS
) backed by autos, credit cards,
consumer loans, and student loans for other AbS
. Illiquid corporate debt includes private place-
ments, bank and syndicated loans, and high-yield bonds. Alternative investments include assets
filed under Schedule
. P&C is property and casualty. The key identifies bars in order from top
to bottom.
Box 5.1. Survey of Salient Risks to Financial Stability
Figure A. Fall 2024: Most cited potential shocks over the next 12 to 18 months
sponses are to the following question: “Over the next 12–18 months, which shocks, if
realized, do you think would have the greatest negative impact on the functioning of the U.S.
financial system?”
pring 2024: Most cited potential shocks over the next 12 to 18 months
sponses are to the following question: “Over the next 12–18 months, which shocks, if
realized, do you think would have the greatest negative impact on the functioning of the U.S.
financial system?”
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