The US Federal Reserve has warned of a potential decline in asset prices and other financial risks as the coronavirus (Covid-19) pandemic and recession persists.
“Given the high level of uncertainty associated with the pandemic, assessing valuation pressures is particularly challenging, and asset prices remain vulnerable to significant declines should investor risk sentiment fall or the economic recovery weaken,” the Fed said on Monday in its latest biannual Financial Stability Report.
“Business and household earnings have fallen and business borrowing has risen, which leave households and firms more vulnerable to future shocks,” the report said, adding loan defaults may rise, leading to material losses for lenders.
The report also noted that the Covid-19 shock highlighted how vulnerabilities related to leverage and funding risk at nonbank financial institutions could amplify shocks in the financial system in times of stress, reports Xinhua.
“The resurgence of fragility and funding stress in the same nonbank financial sectors in the Covid-19 crisis and the Global Financial Crisis highlights the importance of a renewed commitment to financial reform,” Lael Brainard, a member of the Fed’s Board of Governors, said Monday in a statement.
“In addition, the March turmoil highlights the importance of exploring reforms in the critically important Treasury market,” Brainard said.
The report came as the United States on Monday confirmed more than 10 million Covid-19 cases, just 10 days after hitting 9.0 million, according to data from Johns Hopkins University.
“In the near term, risks associated with the course of COVID-19 and its effects on the US and global economies remain high,” the report said.
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