WASHINGTON–There are few surprises in a new report from Treasury that offers a review of 2022, with the report noting tight credit conditions, inflation, and the geopolitical landscape all contributed to elevated systemic risk to the financial system in 2022.
The report was released by Treasury’s financial research arm, the Office of Financial Research (OFR), and further points to threats to financial stability from “non-traditional” risks, including cybersecurity, digital assets and climate-related financial risks.
Contributing to elevated risk, according to Treasury, were:
- U.S. economic growth slowed as inflation and a spike in commodity prices hampered global growth prospects
- Tighter financial conditions exposed credit risk vulnerabilities
- Fixed-income and equity investors experienced large losses from a sharp increase in risk-free rates and may face more declines if market sentiment deteriorates.
Some Encouraging News
The report offers encouragement, noting that financial institutions overcame the “headwinds” of the impact of elevated financial risk and “remained well capitalized and maintained risk-based capital ratios well above regulatory minimums.”
‘Unique Challenges’
The report adds, however, that financial institutions in general – including banks, insurance companies, hedge funds and more – face continued “uncertainty and unique challenges due to higher interest rates and inflation, slower economic growth, and geopolitical risks.”
Meanwhile, when it comes to digital insights, the report cites the plunge in the value of crypto currency, noting the total capitalization of digital assets fell from more than $2.2 trillion at the beginning of 2022 to less than $1 trillion by August of last year.
The full report can be found here:
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