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Financial Stability Monitoring

Daniel Covitz (), Nellie Liang () and Tobias Adrian ()
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Daniel Covitz: Research and Statistics, Board of Governors of the Federal Reserve, Washington, DC 20551
Nellie Liang: Office of Financial Stability Policy and Research, Board of Governors of the Federal Reserve, Washington, DC 20551

Annual Review of Financial Economics, 2015, vol. 7, issue 1, 357-395

Abstract: We present a forward-looking monitoring program to identify and track the sources of systemic risk over time and to facilitate the development of preemptive policies to promote financial stability. We offer a framework that distinguishes between shocks, which are difficult to prevent, and vulnerabilities, which amplify shocks. Building on substantial research, we focus on leverage, maturity transformation, interconnectedness, complexity, and the pricing of risk as the primary vulnerabilities in the financial system. The monitoring program tracks these vulnerabilities in four areas: the banking sector, shadow banking, asset markets, and the nonfinancial sector. The framework also highlights the policy trade-off between reducing systemic risk and raising the cost of financial intermediation by taking preemptive actions to reduce vulnerabilities.

Keywords: asset valuations; financial stability; macroprudential policies; shadow banking; systemic risk (search for similar items in EconPapers)
JEL-codes: E50 E60 G10 G20 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Financial Stability Monitoring (2014) Downloads
Working Paper: Financial stability monitoring (2014) Downloads
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Handle: RePEc:anr:refeco:v:7:y:2015:p:357-395