The Fed: Fed flags concerns over corporate debt in first-ever financial stability report

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U.S. Federal Reserve Chairman Jerome Powell

The Federal Reserve used its first-ever financial stability report to warn primarily of the dangers lurking in corporate debt, as it made the case that the banks it regulates are strongly capitalized.

The Fed said valuation pressures are generally elevated, with investors exhibiting a high tolerance for risk taking with business debt-related assets. It found that the debt owned by businesses relative to GDP is historically high, with signs of deteriorating credit standards.

All that said, the Fed also found less worrisome aspects in the financial system. Household borrowing has rose roughly in line with income, the nation’s largest banks are strongly capitalized and have more liquid assets, broker-dealer leverage is below pre-crisis levels, insurers have strengthened their financial position, and money market funds are less vulnerable to runs.

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