The Federal Reserve warned Monday that the banking industry's concerns about slowing economic growth could lead to a reduction in loan originations, which in turn could trigger an accelerating economic downturn. This is the first financial stability report issued by the Fed since the collapse of four regional banks.
The report said bank financing has generally remained relatively stable, but there are substantial liquidity risks in other corners of the financial markets. Overall, domestic banks have ample liquidity and limited reliance on short-term wholesale funding, the report said. Short-term funding markets remain structurally vulnerable. High-quality and tax-exempt money market funds, as well as other cash investment vehicles and stable currencies, remain vulnerable to runs. Life insurers face higher liquidity risk, as the proportion of risky and illiquid assets remains high.
The report said bank financing has generally remained relatively stable, but there are substantial liquidity risks in other corners of the financial markets. Overall, domestic banks have ample liquidity and limited reliance on short-term wholesale funding, the report said. Short-term funding markets remain structurally vulnerable. High-quality and tax-exempt money market funds, as well as other cash investment vehicles and stable currencies, remain vulnerable to runs. Life insurers face higher liquidity risk, as the proportion of risky and illiquid assets remains high.