FRB-NY Finds Bank Vulnerabilities Worrisome, But Manageable

Federal Reserve Bank of New York staff today released their latest assessment of the U.S. banking system’s vulnerability, updating its methodology now to include unrealized losses – clearly a lesson the FRB-NY analysts learned the hard way earlier this year.  Although some measures of systemic risk hovers around 2008 levels, the FRB-NY capital-stress model remains at historically low levels compared to 2008 stress.  However, incorporating unrealized losses “the 2023 scenario” finds banks at “somewhat elevated” levels compared to historical norms.

Cook Points to Emerging Systemic Worries

FRB Gov. Lisa Cook today said that the U.S. financial system is considerably more robust than it was in the mid-2000s, basing her analysis on the Fed’s most recent financial-stability assessment (see FSM Report SYSTEMIC95).  Much in her talk echoes the Fed’s report, with Gov. Cook noting she is particularly focused on NBFI leverage and, going beyond the Fed’s current thinking, also the systemic risk AI may pose.

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