##connected financial firms. currently, these firms appear well positioned to absorb a shock. for instance, figure 2 shows the ratio of common equity tier 1 capital to risk - weighted assets — a standard regulatory capital measure — for three groups of banks. this ratio has been increasing for all types of banks lately and, for the largest banks, stands at multidecade highs. the largest banks - 4also have strong funding profiles, owing in part to the strength of the regulatory regime for these banks. despite the overall resilience of the banking sector, some regional banks experienced large deposit outflows amid the failures of three banks last spring. conditions have improved considerably since then : bank profitability remains solid, and deposit flows have stabilized. in addition, as shown in figure 3, most institutions have lowered their reliance on uninsured deposits since the beginning of 2023. we remain attuned to vulnerabilities in this sector. supervisors are working closely with the set of banks that have experienced outsized fair - value losses from higher interest rates and with banks that have high concentrations of commercial real estate loans. we have varying levels of visibility into the leverage and funding vulnerabilities of other financial intermediaries. while there are some areas of apparent vulnerability, there is also evidence of resilience. hedge fund leverage is hard to measure, but available data suggest that these funds ’ leverage is near the high end of its range. large insurers are well capitalized, but they have been increasing their use of liabilities subject to rollover risk at the same time as they have raised the portion of their assets invested in riskier corporate debt instruments. money funds have inherent funding vulnerabilities that regulators have been taking steps to address. reforms adopted by the sec and coming into force this year will improve funds ’ liquidity positions and address the structural first - mover advantages among money fund investors that contributed to some of the runs we have seen in this sector over the years. - 5asset valuations let me turn now to asset valuations. i think it is helpful to consider this potential vulnerability in the context of how a sharp change in valuations could interact with the vulnerabilities i have already discussed. i will start with the classic concern for all of us who lived through the great recession : a large decline in asset prices against the backdrop of a weak economy. for example, house prices are high relative to historical benchmarks, likely owing partly to a limited

financial resilience can also play a crucial role in mitigating the adverse effects of cyberattacks. cyberattacks erode the confidence that investors and institutions have in each other and in the financial sector. while strong capital and liquidity positions will not, by themselves, prevent an intrusion, they leave the affected institution in a better position to rejoin the system once the attack is resolved and, most importantly, promote confidence among its counterparties. moreover, the effects of chaotic markets may impact other institutions that suddenly face losses whose magnitudes might be hard to judge. well capitalized, - 10 highly liquid, and well managed institutions will be best positioned to manage such difficult circumstances. conclusion let me conclude by summarizing how we approach the set of issues i have discussed — including systemwide monitoring, cre and private credit developments, and cyber risks — in our financial stability work. we cannot know the next shock that will test the resilience of the financial system. that is why we focus on the resilience of the financial sector in our regulatory and supervisory work concerning banking organizations and in our engagement with other regulators. we also continuously monitor the financial system and regularly report our assessments in the financial stability report. such public communication contributes to the transparency and accountability of our efforts. i hope it also stimulates a public discussion of vulnerabilities to financial stability, as my colleagues and i value the range of views on these issues held across researchers, financial market participants, and the broader public. for this reason, i look forward to our discussion. again, thank you to the hutchins center and the brookings institution for hosting me today. may 07, 2024 figure 1 business and household debt - to - gdp 1. 1 ratio ratio quarterly 1. 0 0. 9 0. 9 0. 8 0. 8 0. 7 q4 0. 6 0. 4 0. 7 0. 6 nonfinancial business ( right scale ) household ( left scale ) 0. 5 0. 3 1. 0 0. 5 0. 4 note : the shaded bars indicate periods of business recession as defined by the national bureau of economic research : january 1980 - july 1980, july 1981 - november 1982, july 1990 - march 1991, march 2001 - november 2001, december 2007 - june 2009, and february 2020 - april 2020. gdp is gross domestic product. source : federal reserve board staff calculations based on bureau of economic analysis, national income and product accounts,