OFR_2016_Financial-Stability-Report

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High-Quality Liquid Assets (HQLA) High-Yield Bonds Initial Margin Interest Rate Swap Intermediation International Monetary Fund (IMF) International Organization of Securities Commissions (IOSCO) Investment-Grade Debt Legal Entity Identifier Leverage Leverage Ratio Liquidity Coverage Ratio Assets such as central bank reserves, government bonds, and corporate debt that can be quickly and easily converted to cash during a stress period. U.S. banking regulators require large banks to hold HQLA to comply with the Liquidity Coverage Ratio. Instruments rated below investment grade that pay a higher interest rate than investment-grade securities because of the perceived credit risk. A percentage of the total market value of securities an investor must pay to purchase securities with borrowed funds. A swap in which two parties swap interest rate cash flows, typically between a fixed rate and a floating rate (see Swap). Any financial service in which a third party or intermediary matches lenders and investors with entrepreneurs and other borrowers in need of capital. Often investors and borrowers do not have precisely matching needs, and the intermediary’s capital is put at risk to transform the credit risk and maturity of the liabilities to meet the needs of investors. An international organization created at the end of World War II to stabilize exchange rates and support international payment systems. The IMF provides credit to developing nations and those in economic distress, typically conditional on economic and financial reforms. IOSCO is the international body for securities regulators, and is the recognized standard setting organization for the securities industry. IOSCO works closely with the G-20 forum of nations and the Financial Stability Board on global financial regulatory reforms. Securities that credit rating agencies determine carry less credit risk. Noninvestmentgrade securities, also called speculative-grade debt, have lower ratings and a greater risk of default. A unique 20-digit alphanumeric code to identify each legal entity within a company that participates in global financial markets. Leverage is created when an entity enters into borrowings, derivatives, or other transactions resulting in investment exposures that exceed equity capital. The Tier 1 (highest quality) capital of a bank divided by its total exposure to derivatives, securities financing transactions, and on- and off-balance-sheet exposures. A Basel III standard to ensure that a bank maintains enough high-quality liquid assets to meet its anticipated liquidity needs for a 30-day stress period. The ratio applies to banks with $250 billion or more in total consolidated assets or $10 billion or more in on-balance-sheet foreign exposure. A less-strict ratio is required of banks with $50 billion or more in total assets (see High-Quality Liquid Assets). 98 2016 | OFR Financial Stability Report
Liquidity Risk Liquidity Transformation Living Wills Macroeconomic Risk Macroprudential Supervision Margin Call Margin Requirement Market Liquidity Market Risk Market-Making Maturity Transformation Metadata Metadata Catalog Microprudential Supervision Money Market Fund The risk that a firm will not be able to meet its current and future cash flow and collateral needs, expected and unexpected, without materially affecting its daily operations or overall financial condition. Funding illiquid assets with liquid and demandable liabilities. Annual resolution plans required of U.S. banks with $50 billion or more in total consolidated assets and nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the Federal Reserve. Each living will must describe how the company could be dismantled in a rapid, orderly way in the event of failure. Risk from changes in the economy or macroeconomic policy. Supervision to promote the stability of the financial system as a whole (see Microprudential Supervision). A requirement by a broker that a borrower increase the collateral pledged against a loan in response to changes in the collateral’s value. Rules governing the necessary collateral for a derivative, loan, or related security required to cover, in whole or in part, the credit risk one party poses to another. The ability of market participants to sell large positions with limited price impact and low transaction costs. The risk that an asset’s value will change due to unanticipated movements in market prices. The process in which an individual or firm stands ready to buy and sell a particular stock, security, or other asset on a regular and continuous basis at a publicly quoted price. Market-makers usually hold inventories of the securities in which they make markets. Market-making helps to keep financial markets efficient. Funding long-term assets with short-term liabilities; this practice creates a maturity mismatch that can pose risks when short-term funding markets are constrained. Data about data; metadata include information about the structure, format, or organization of other data. An organized way to present metadata for discovery, exploration, and use of the related data. Supervision of the activities of a bank, financial firm, or other components of a financial system (see Macroprudential Supervision). A fund that typically invests in government securities, certificates of deposit, commercial paper, or other highly liquid and low-risk securities. Glossary 99
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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
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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 and 102: Conditional Value-at-Risk (CoVaR) C
Page 103: Fire Sale Form N-MFP Form PF Fundin
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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