January 07, 2025
By Office of Financial Research
Washington, DC − (Highpoint Digest) − On November 20, 2024, the Office of Financial Research (OFR) published its 2024 Annual Report to Congress, which concluded that most vulnerabilities that can impair U.S. financial stability are largely unchanged since last year. The report covers risks to financial stability for the 12 months through September 30, 2024.
“By delivering our in-depth analysis of financial-stability risks and providing high-quality monitoring tools and data, we endeavor to support the Financial Stability Oversight Council and its member agencies, policymakers, and others in mitigating vulnerabilities in our financial system,” said James Martin, Acting Director of the OFR. “The OFR continues to monitor and analyze risks to financial stability and remain agile to identify and examine emerging threats as they arise now and in the future.”
The OFR’s 2024 Annual Report to Congress is organized around the four major components of the financial system—asset markets, businesses and households, financial institutions, and money markets—and provides an analysis of the vulnerabilities that can impair the functioning of the system. Because technology is critical to the operation of each major component of the financial system, the 2024 Annual Report to Congress discusses technology vulnerabilities throughout the report. The report also identifies and discusses key data gaps related to uninsured deposits, private credit, and dealer margin practices.
In its 2024 Annual Report to Congress, the OFR highlighted its key findings regarding financial system vulnerabilities. Overall, asset market vulnerabilities remain elevated. Vulnerabilities associated with credit to businesses and households remain moderate. At some nonbank financial institutions, vulnerabilities are growing and can amplify risk at other financial institutions. In money markets, vulnerabilities are moderate.
The 2024 Annual Report to Congress also discussed several significant OFR accomplishments. The OFR published its Final Rule on non-centrally cleared bilateral repurchase (NCCBR) agreement transactions (or repo). The Final Rule establishes an ongoing data collection of certain NCCBR transactions in the U.S. repo market and requires daily reporting by certain brokers, dealers, and other financial companies with large exposures to NCCBR. In addition, the OFR launched a new Hedge Fund Monitor that makes aggregated data on hedge fund activities from public and private sources accessible to the public through an easy-to-use online tool and also via an application programming interface (API). The Hedge Fund Monitor informs the public and policymakers about significant parts of the U.S. financial system. Further, the OFR updated its Bank Systemic Risk Monitor to provide enhanced details for analyzing a bank holding company’s leverage.
2024 Annual Report to Congress
The 2024 Annual Report to Congress provides an analysis of risks to financial stability in the United States and key findings from the OFR’s research and analysis. It also details the OFR’s organizational efforts in meeting its missions of supporting the financial stability work of the Council and achieving organizational excellence.
Since last year’s report, risks to U.S. financial stability are largely unchanged, and key data gaps remain. In some asset markets, valuations and investor sentiment remain near extremes or the use of complex leveraged trading strategies has grown. Valuations in residential real estate markets remain stretched, while prices of commercial office properties are falling. Among nonfinancial businesses and households, most are able to service their debt, and vulnerabilities remain moderate. However, delinquency and default rates have risen for the debt of the less creditworthy of these borrowers. Solvency risk within the financial sector appears low overall, but smaller banks that are heavily exposed to the office property sector face a greater risk of insolvency. Leverage and other financial risks at some nonbank financial institutions increased. Money markets continue to face run risk due to structural features. Technology disruptions since the last report did not impair financial stability but revealed vulnerabilities that heighten the risk. Data gaps continue to limit visibility into potential vulnerabilities across parts of the financial sector.
From the Office of the Director
This was another year of great progress for our Office in support of the Financial Stability Oversight Council and its member agencies. We saw the culmination of several years of work come to fruition during fiscal year 2024, as our staff made significant strides in collecting and providing data to further financial stability research and analysis and enabling collaboration and research among the Financial Stability Oversight Council’s member agencies.
Report Highlights
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Asset markets
- Asset market vulnerabilities remain elevated.
- Equity valuations and investor sentiment are high relative to historical averages, raising the risk of large, sudden price declines.
- In residential real estate markets, price appreciation has moderated from a year ago, although valuations remain high. Commercial real estate prices are weak in the office sector.
Financial institutions
- Vulnerabilities at some nonbank financial institutions are growing and can amplify risk at other financial institutions.
- Banks’ loan books appear healthy. Even so, some smaller banks with a high exposure to office loans have a greater risk of failing during the next few years.
- For some types of nonbank financial institutions, vulnerabilities have been rising. For others, vulnerabilities are unchanged, or assessing the vulnerabilities is limited by data gaps regarding their leverage and portfolio exposures.
The OFR helps promote financial stability by looking across the financial system to measure and analyze risks, perform essential research, and collect and standardize financial data, principally to support the Financial Stability Oversight Council and its member agencies.
Image Credit: U.S. Library of Congress
