OFR_2016_Financial-Stability-Report

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Distress Insurance Premium Dodd-Frank Act Duration Risk Emerging Markets Eurozone Exchange-Traded Fund (ETF) Federal Financial Institutions Examination Council (FFIEC) Financial Contagion Financial Stability Oversight Council (FSOC) Financial Stability Board (FSB) A systemic risk indicator that measures the hypothetical contribution a financial institution would make to an insurance premium that would protect the whole financial system from distress. Short name for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the most comprehensive financial reform legislation in the United States since the Great Depression. The Dodd-Frank Act seeks to promote financial stability by improving accountability in the financial system, adding transparency about over-the-counter (OTC) derivatives markets, and protecting consumers from abusive financial services practices. The risk associated with the sensitivity of the prices of bonds and other fixed-income securities to changes in the level of interest rates. Developing countries where investments are often associated with both higher returns and higher risk. Emerging market countries fall between developed markets such as the United States and more speculative frontier markets. A group of 19 European Union countries that have adopted the euro as their currency. An investment fund whose shares are traded on an exchange. Because ETFs are exchange-traded products, their shares are continuously priced, unlike mutual funds, which offer only end-of-day pricing. ETFs are often designed to track an index or a portfolio of assets. An interagency body that prescribes uniform principles, standards, and report forms for the federal examination of financial institutions. The FFIEC makes recommendations to promote uniformity in banking supervision. Members include the Federal Reserve, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau, and a representative of state financial supervisors. A scenario in which financial or economic shocks initially affect only a few financial market participants and then spread to other parts of the financial system and countries in a manner similar to the transmission of an epidemic. Financial contagion can happen at both the international level and the domestic level. Created by the Dodd-Frank Act, a collaborative U.S. governmental body with a statutory mandate that creates collective accountability for identifying risks and responding to emerging threats to financial stability. Chaired by the Secretary of the U.S. Treasury, the Council consists of 10 voting members and 5 nonvoting members, including the OFR Director. An international coordinating body that monitors financial system developments on behalf of the G-20 nations. The FSB was established in 2009 and is the successor to the Financial Stability Forum. 96 2016 | OFR Financial Stability Report
Fire Sale Form N-MFP Form PF Funding Liquidity Generally Accepted Accounting Principles (GAAP) Global Systemically Important Banks (G-SIBs) Global Systemically Important Insurers (G-SIIs) Gross Notional Exposure (GNE) Haircut Hedge Fund Hedging High-Frequency Trading The disorderly liquidation of assets to meet margin requirements or other urgent cash needs. Such a sudden sell-off can drive prices below their fair value. The quantities sold are large relative to the typical volume of transactions. A monthly disclosure of portfolio holdings submitted by money market funds to the SEC, which makes the information publicly available. SEC Rule 30b1-7 established the technical and legal details of N-MFP filings. A periodic report of portfolio holdings, leverage, and risk management submitted by hedge funds, private equity funds, and related entities. The report is filed with the SEC and CFTC, which keep the information confidential. The Dodd-Frank Act mandated the reporting to help the FSOC monitor financial stability risks. The availability of credit to finance the purchase of financial assets. Accounting rules published in the United States by the Financial Accounting Standards Board. Banks annually designated by the Basel Committee on Banking Supervision for having the potential to disrupt international financial markets. The designations are based on banks’ size, interconnectedness, complexity, dominance in certain businesses, and global scope. Insurance companies annually designated by the FSB for having the potential to disrupt international financial markets because of their size, market position, and global interconnectedness. A measure of total portfolio leverage, for example in a hedge fund. GNE is calculated as the summed absolute values of long and short notional positions, including both securities and derivatives. The discount at which an asset is pledged as collateral. For example, a $1 million bond with a 5 percent haircut would collateralize a $950,000 loan. A pooled investment vehicle available to accredited investors such as wealthy individuals, banks, insurance companies, and trusts. Hedge funds can charge a performance fee on unrealized gains, borrow more than one half of their net asset value, short sell assets they expect to fall in value, and trade complex derivative instruments that cannot be traded by mutual funds. An investment strategy to offset the risk of a potential change in the value of assets, liabilities, or services. An example of hedging is buying an offsetting futures position in a stock, interest rate, or foreign currency. The use of computerized securities trading platforms to make large numbers of transactions at high speeds. Glossary 97
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OFFICE OF FINANCIAL RESEARCH 2016 F
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Contents Executive Summary ........
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Chapter 2 provides deeper analysis
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of sharp decreases in U.S. equity a
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1 Financial Stability Assessment Ov
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Figure 3. Real GDP Growth (year-ove
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Figure 8. Ten-Year U.S. Treasury Yi
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Monitoring Shadow Banking Risks The
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An earlier OFR paper proposed an ac
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Figure 17. Size, Liquidity, and Con
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Figure 19. Top Systemic Risk Scores
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The analysis pointed to seven key t
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could. In early 2016, investor conc
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earnings or share issuance. But red
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Fund Monitor, the OFR assessed expo
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2.2 Risks in U.S. Nonfinancial Corp
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Figure 31. U.S. Nonfinancial Corpor
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Figure 36. U.S. Corporate Bond Defa
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Commercial Real Estate Prices Have
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2.3 Cybersecurity Incidents Affecti
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Hackers Breach Bangladesh’s Centr
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Figure 42. Banks that Include an Op
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The industry is working with the pu
Page 52 and 53: Figure 46. U.S. Financial Regulator
Page 54 and 55: 48 2016 | OFR Financial Stability R
Page 56 and 57: eleased the results of an unprecede
Page 58 and 59: Figure 49. CCP Default Waterfall ($
Page 60 and 61: Figure 50: CCP Ratios and Amounts f
Page 62 and 63: cause more-prudent CCPs to appear m
Page 64 and 65: 2.5 Pressure on U.S. Life Insurance
Page 66 and 67: The experience of Japan’s life in
Page 68 and 69: 2015). These benefits are effective
Page 70 and 71: Figure 55. Life Insurance Securitie
Page 72 and 73: Drivers of Insurers’ Systemic Ris
Page 74 and 75: 2.6 Systemic Footprints of Largest
Page 76 and 77: Interest Rates and Derivatives Expo
Page 78 and 79: Figure 63. Components of U.S. G-SIB
Page 80 and 81: Figure 66. Five-Year Changes to G-S
Page 82 and 83: 2.7 Deficiencies in Data and Data M
Page 84 and 85: Figure 68. Examples of Key Post-Cri
Page 86 and 87: Broader Adoption of Data Standards
Page 88 and 89: Better Regulatory Sharing Needed Th
Page 90 and 91: The U.S. Census Bureau surveys publ
Page 92 and 93: The group will also consider how th
Page 94 and 95: and contracts would be crucial. The
Page 96 and 97: Figure 72. Scaling of Data Validati
Page 99 and 100: Glossary 10-Year, 10-Year Forward R
Page 101: Conditional Value-at-Risk (CoVaR) C
Page 105 and 106: Liquidity Risk Liquidity Transforma
Page 107 and 108: Pension Funded Ratio Pension Risk T
Page 109 and 110: Stress Test Supplemental Leverage R
Page 111 and 112: Bibliography Adrian, Tobias, and Ma
Page 113 and 114: Board of Governors of the Federal R
Page 115 and 116: www.richmondfed.org/~/media/richmon
Page 117 and 118: Her Majesty’s Government and Mars
Page 119 and 120: Paul, Ruma. “Bangladesh hopes to
Page 121: Zetter, Kim. “That Insane, 18M Ba
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