with the current situation using our four - point checklist, beginning with borrowing by businesses and households. business debt has grown faster than gross domestic product ( gdp ) for several years and today is high. but the growth in the ratio of business debt to gdp in the past decade is much less than the growth in household debt to gdp that we saw in the run - up to the global financial crisis. back then, household debt grew from 60 percent of gdp to 90 percent, or by half ( figure 5 ). at its recent low, business debt was 65 percent of gdp. now, even after rapid growth, it is still below 75 percent of gdp. overall, the increase in business debt relative to the the board ’ s financial stability report discusses the analytical framework. for a longer and more academic discussion, see adrian, covitz, and liang ( 2015 ). for research on the role of credit, house prices, and other factors as indicators for potential financial instability, see borio and lowe ( 2002 ) ; schularick and taylor ( 2012 ) ; jorda, schularick, and taylor ( 2016 ) ; and kiley ( 2018 ). for research on the role of bank capital, see basel committee on banking supervision ( 2010 ) ; macroeconomic assessment group ( 2010 ) ; and firestone, lorenc, and ranish ( 2017 ). - 7size of the economy is one - third the increase in household debt seen in the previous decade. business debt rises in expansions. it is a steady upward plod in borrowing over the long expansion — not a rapid expansion — that has now brought business debt to gdp back to historic highs. seen this way, the current situation looks typical of business cycles. the mortgage credit boom was, because of its magnitude and speed, far outside historical norms. 3 as for household debt, we see that household debt - to - income ratios have steadily declined post - crisis. moreover, a high and rising fraction of this debt is rated prime. all told, household debt burdens appear much more manageable. our second factor — valuation pressures — also points to moderate risks to financial stability. valuations are high across several financial markets. equity prices have recently reached new highs, and corporate bond and loan spreads are narrow. both commercial and residential property prices have moved above their long - run relationship with rents, although price gains slowed substantially last year. all of these developments point to strong risk appetite — as might be expected

and investors reason to pause and reflect. if financial and economic conditions were to deteriorate, overly indebted firms could well face severe strains. however, the parallels to the mortgage boom that led to the global financial crisis are not fully convincing. most importantly, the financial system today appears strong enough to handle potential business - sector losses, which was manifestly not the case a decade ago with subprime mortgages. and there are other differences : increases in business borrowing are not outsized for such a long expansion, in contrast to the mortgage boom ; business credit is not fueled by a dramatic asset price bubble, as mortgage debt was ; and clo structures are much sounder than the structures that were in use during the mortgage credit bubble. could the increase in business debt pose greater risks to the financial system than currently appreciated? my colleagues and i continually ask ourselves that question. we are also taking multiple steps to better understand and address the potential risks. in conjunction with other u. s. regulatory agencies, both domestically through the financial stability oversight council ( fsoc ) and internationally through the financial stability board ( fsb ), we are monitoring developments, assessing unknowns, and working to develop a clearer picture. we are also using our supervisory tools to hold the banks we - 3supervise to strong risk - management standards. and we are using our stress tests to ensure banks ’ resilience even in severely adverse business conditions. the rise of business leverage let ’ s start with the basic facts. many measures confirm that the business sector has significantly increased its borrowing as the economy has expanded over the past decade. business debt relative to the size of the economy is at historic highs. corporate debt relative to the book value of assets is at the upper end of its range over the past few decades ( figure 1 ). and investment - grade corporate debt has shifted closer to the edge of speculative grade. at the moment, the business sector is quite healthy overall. business income is strong, reflecting healthy profit margins. and because interest rates are quite low by historical standards, the costs of servicing today ’ s higher levels of debt remain low relative to business income ( figure 2 ). despite crosscurrents, the economy is showing continued growth, strong job creation, and rising wages, all in a context of muted inflation pressures. but if a downturn were to arrive unexpectedly, some firms would face challenges. not only is the volume of debt high, but recent growth has also been