The report, released on Wednesday, highlights what it called ''the considerable progress we have collectively made to improve the strength and resiliency of the financial sector.'' But Janet L. Yellen, the chairwoman of the Federal Reserve, said at Wednesday's open meeting of the council: ''Our job is not done. We must continue our collective efforts to monitor risks, address vulnerabilities and build a stronger and safer financial system.''
The ''chief accomplishment'' in recent years has been the improvement in big bank holding companies' balance sheets, Ms. Yellen said, adding that the Federal Reserve's stress tests had ''provided a level of confidence in our assessment of how financial institutions would fare'' in another downturn.
The oversight council — made up of the heads of the Treasury, Fed and other regulators — also cited the completion of the so-called Volcker rule restricting certain firms from making bets with their own money, as well as new rules on bank capital, leverage ratios and swaps markets.
But threats old and new abound, and the annual report acts as a guide to what
The perception that big, interconnected financial firms might be ''too big to fail'' persists, the report warns. The markets where many banks look for short-term cash loans remain potential weak spots, too.
''The risk of fire sales continues to be a major source of financial instability in the tri-party repo market,'' the report said, referring to a market for short-term loans. ''No single regulator has an ability to support orderly liquidations across all investors in the market. Market participants will be critically important in defining a solution to this collective action problem.''
On top of those concerns, sharp increases in interest rates might hit firms that have soaked up riskier assets on the cheap in the last few years.
The report also notes that there has been no progress in overhauling the housing finance market, with lawmakers loathe to touch
''Access to mortgage credit remains unnecessarily tight,'' Treasury Secretary
The markets also might remain overly reliant on a global benchmark interest rate, known as
There are potential new or emerging threats as well, the document warns. The nonbank mortgage servicers that collect fees on a growing number of home loans ''are not currently subject to prudential standards such as capital, liquidity or risk management oversight.''
Another potential risk is that some big asset managers are providing indemnification to securities lenders. But such asset managers are not required to set aside money to cover potential payouts, nor do they have banks' deposit funding base, the report noted.
A person close to the development of the annual report stressed that such developments might not be any kind of threat, but that the council wanted to keep tabs on them.
The council also updated its own rules, issuing a new transparency policy that will give the public more access to information before and after its meetings.
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