Fed Governor Cook on financial stability

Bank Regulatory Risk Management Federal Reserve

On November 8, Federal Reserve Governor Lisa D. Cook delivered a speech regarding financial stability at the Central Bank of Ireland. Governor Cook underscored the link between financial stability and the Fed’s stable process and maximum employment and focused on four key vulnerability categories: (i) asset valuations; (ii) business and household borrowing; (iii) financial-sector leverage; and (iv) funding risks. Governor Cook noted rising asset valuations in various markets, especially in the real estate sector, and the potential risks associated with high levels of borrowing by businesses and households. Additionally, she discussed the importance of monitoring financial sector leverage and funding risks, both in bank and nonbank financial institutions.

Governor Cook also outlined near-term risks that could impact the resilience of the financial system. These risks included inflationary pressures, potential losses in the real estate market, banking-sector stress, and market liquidity strains. She emphasized the need for robust oversight and prudential requirements for nonbank financial institutions, as they are becoming increasingly interconnected with the banking sector.

Finally, Governor Cook stressed the importance of remaining vigilant in identifying and addressing vulnerabilities within the global financial system to ensure its stability and, in turn, support the well-being of households, businesses, and the broader economy.