In this report, we highlight key points in the Board’s unusually explicit discussion of financial-stability risks included in the semi-annual monetary policy report provided today to the Congress in concert with Chair Yellen’s testimony.  A separate report today analyzes key points at the hearing, which did not address any of the Board’s financial-stability conclusions.  Most surprising among them was the explicit reference to Fed fears about valuation risk among EU banks, with the phrasing of this section of the report hinting strongly that Deutsche Bank and Italian banks lead the worry list.  The Board is also concerned about rising valuation risk in the commercial and residential real estate sector but indicates that its forthcoming stress test will determine the extent to which additional action is warranted.

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