metrics, such as price - to - earnings ratios, corporate bond yields, and property capitalization rates, appear notably less stretched when judged relative to low treasury yields. that said, treasury yields reflect historically low term premiums — the compensation investors demand to hold assets over a longer horizon. this poses the risk that term premiums could rise sharply — for instance, if investor perceptions of inflation risks increased. i will return to this risk later. although asset valuations are elevated, vulnerabilities due to debt owed outside the financial sector appear to be moderate — in the middle of their historical range. this reflects elevated leverage in the nonfinancial business sector and a moderate pace of borrowing in the household sector. in the nonfinancial business sector, the debt - to - earnings ratio has increased to near the upper end of its historical distribution, and net leverage at speculative - grade firms remains especially elevated. overall, however, the ratio of nonfinancial - sector borrowing to gross domestic product has been below an estimate of its trend for several years as a result of the deleveraging of the household sector following the crisis. while the sustained period of postcrisis household deleveraging appears to have come to an end and savings rates have recently moved down, overall borrowing has been at a moderate pace and, on net, concentrated among borrowers with high credit scores. even though the balance sheet of the household sector as a whole appears relatively strong, recent years have seen a rapid rise in student debt as well as rising default rates for borrowers with subprime credit scores on auto loans and, more recently, credit card balances. beyond the nonfinancial sector, the vulnerabilities associated with maturity and liquidity transformation in the financial system appear to have fallen significantly relative to the levels seen prior to the crisis. the amount of wholesale short - term funding, which proved to be a substantial source of run risk during the crisis, has dropped substantially since its peak in 2008. money market funds, which had been an area of vulnerability in the crisis, have undergone important reforms, including a move to floating net asset values for prime institutional funds along with the imposition of fees and restrictions on redemption. the anticipation of the enactment of these reforms in october 2016 led to a large decline in the level of assets under management at the affected funds, which has since held steady. so far, the growth of alternative short - term investment vehicles that could pose similar risks appears

large banking institutions releasing the capital and liquidity buffers that they have built so effectively over the past few years, especially since credit growth and profitability in the u. s. banking system are robust. of course, if cyclical pressures continue to build and financial vulnerabilities broaden, it may become appropriate to ask the largest banking organizations to build a countercyclical buffer of capital to fortify their resilience and protect against stress. alternatively, if there were to be a 5 / 7 bis central bankers'speeches material adjustment to the calibration of the structural buffers held by the large banking institutions, it would be important to make a compensating adjustment to the countercyclical buffer in order to achieve the same overall resilience to financial vulnerabilities. as a rough rule of thumb — and as described in the board ’ s framework for implementing the ccyb, which was finalized in september 2016 — the criteria for setting the ccyb are calibrated so that the ccyb will be above its minimum value about one - third of the time, assuming that vulnerabilities evolve as they did pre - crisis. it is worth noting that some other jurisdictions have designed their countercyclical buffer requirement to be above zero roughly half of the time — spanning a greater range of economic conditions than in the united states. this may reflect a difference in the relative emphasis on structural buffers relative to cyclically varying buffers. it is worth noting that, although u. s. structural buffers are on the stronger end of the range internationally, the u. s. banking system is also among the healthiest and most competitive in the world. credit growth is robust, and banks are registering strong profitability relative to their international peers. conclusion our financial stability agenda seeks to reduce the likelihood and severity of financial crises. in the wake of the 2007 – 09 financial crisis and recession, we learned important lessons about the critical necessity of monitoring emerging financial vulnerabilities in a systematic fashion and taking corresponding prudential, macroprudential, and countercyclical policies to build resilience. we undertake systematic assessment of financial vulnerabilities as an important input into our policymaking processes — helping to calibrate the prudential, macroprudential, and countercyclical policies that are our first lines of defense, in addition to informing fomc deliberations because of the important feedback loops