OFR 2022 ANNUAL REPORT TO CONGRESS
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 OFR’s 2022 Annual Report to Congress found overall threats to U.S. financial stability were elevated compared to last year. The 2022 report discussed how the systemic risk landscape was elevated as financial institutions faced more uncertainty from rising inflation, tight credit conditions, and the geopolitical landscape. The report also looked at the emerging threats posed by non-traditional risks, such as cybersecurity, digital assets, and climate-related financial risks.
From the Office of the Director
The last few years have been historically tumultuous, marked by a global pandemic, a slowdown in economic growth, substantial volatility in the investment markets, and increased political tensions abroad. Despite the challenging environment of the past year, the OFR never wavered in executing its critical mission. Our staff demonstrated leadership in the international financial data standards space, built and maintained sophisticated technology systems to facilitate research, and contributed to multiagency groups focused on addressing critical risks to financial stability. We made significant strides in closing financial-data and visibility gaps and informing policymakers via a wide range of monitoring tools and published research.Read More
- Strong demand and commodity supply disruptions drove high global inflation.
- Firms that rely on floating-rate debt, and those that need to refinance, will face higher borrowing costs at the same time financial conditions are tightening and revenue growth is slowing.
- Household debt remains below pre-pandemic levels due to previously low interest rates and pandemic-related support aid that decreased debt obligations.
- Uncertainty about monetary policy could lead to Treasury market volatility and reduced liquidity.
- Short-term funding market conditions have tightened as investors become more risk averse amid economic and monetary policy uncertainty.
- Asset prices have fallen sharply, but many valuation metrics are either elevated or near historical averages. Further declines in prices are possible if economic conditions weaken materially or if another shock emerges.
- The aggregate U.S. banking sector is well-capitalized in aggregate and have risk-based capital ratios well above regulatory minimums.
- Insurers have increased the risk profile in their investment portfolios in response to low interest rates in recent years, thereby making them more exposed to investment losses during an economic downturn. Inflation continues to negatively affect property and casualty insurers as claim costs rise, especially for homeowners and automobile insurance.
- Liquidity mismatch in money market funds makes them vulnerable to an uptick in investor redemption requests.
- Many prominent crypto asset trading and lending platforms suspended customer withdrawals, some which also filed for bankruptcy. Losses, to date, appear contained within the digital asset sector.
- Many countries are researching or developing a central bank digital currency.
- The increasing frequency of cyberattacks plus the growing cost to guard against them pose risk to the financial system.
- Russia’s war against Ukraine substantially increased the perceived risk of state-sponsored cyberattacks in the U.S. financial services sector although the majority of attacks have been focused on theft.
- Cyber risk coverage has become more challenging to obtain as insurers have tightened their underwriting standards, and insurance premiums for cyber policies have risen substantially.
- Climate–related financial risk has introduced vulnerabilities into the financial system. Assessing those risk are complicated by the medium –to long-term nature of the threat.
- Third parties may end up paying for the cost of climate change related to damages and mitigation efforts.
- Climate-related risks could affect financial institutions and government sponsored mortgage companies through securitization, especially in flood-prone areas.