OFR 2020 Annual Report to Congress
The Office of Financial Research’s 2020 Annual Report found that unexpected turbulence from the COVID-19 pandemic elevated risks across financial markets and revealed limitations in conventional market monitoring.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the OFR to analyze threats to the financial stability of the United States each year and provide Congress with its key findings. The 2020 Annual Report found the COVID-19 pandemic and related economic, financial, and government policy reactions affected all OFR monitored risk categories and greatly heightened overall uncertainty. The report also discussed how traditional market monitoring can miss vulnerabilities that are fundamentally difficult to anticipate.
Assessing financial risk
in a turbulent year
- The effects of the COVID-19 pandemic were global and had devastating health, economic, and financial effects.
- The pandemic and efforts to contain the health threat drastically curtailed economic activity and severely stressed financial markets.
- While the economy and financial markets quickly made partial but substantial recoveries, this required extraordinary government and monetary policy support, which could risk distorting competitive markets if maintained too long.
Risks to financial
stability are elevated
- Potential risks to financial stability remain elevated in most financial risk categories.
- These areas of risk include macroeconomic, credit, market, liquidity and funding, leverage, insolvency and potential contagion, cybersecurity, and others.
- The pandemic illustrated the difficulty for conventional financial stability monitoring to identify true vulnerabilities.
- About 30 prominent financial stability assessments in 2019 attempted to size up and anticipate systemic risk, yet not one discussed the potential for a new pandemic to threaten financial stability.
- Developing an information market for systemic risk management may help reveal costly or otherwise hidden information that can play a fundamental role in creating systemic risks.