The Federal Reserve Board published a speech by Governor Lisa D. Cook describing how the Board’s Committee on Financial Stability frames and updates its assessment of financial stability, including the use of the Federal Reserve’s Financial Stability Report (FSR) and scenario analysis to evaluate vulnerabilities, linkages across sectors, and plausible tail-risk shocks. Cook outlined the committee’s post-Global Financial Crisis mandate to integrate inputs from economists, market experts, supervisors, and payments specialists, with recent discussions spanning hedge fund trading strategies, the rise of private credit, and banks’ connections to nonbank financial entities. She presented the FSR as a twice-yearly platform built around four vulnerabilities the Fed tracks, covering asset valuations, borrowing by businesses and households, leverage in the financial sector, and funding risk, and highlighted rapid growth in large banks’ lending commitments to nonbank financial institutions, which have expanded at an annualized pace of about 9 percent over the past decade, around three times the pace of commercial and industrial lending. On scenario analysis, she contrasted supervisory stress tests with financial-stability exercises that may use novel narratives and focus on second-round amplification effects, while emphasizing persistent constraints from data gaps and the need to identify indicators that would validate or falsify assessments as conditions evolve. She noted that the next Financial Stability Report is expected later this spring.

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