Destabilizing speculation

Financial Stability Risks ‘High’ As Climate, COVID, Crypto Dangers Rise, Says US


The Financial Stability Oversight Council said the risks to US financial stability are higher today than before the pandemic, as rising debt levels, climate risks and the lingering uncertainty associated with the COVID-19 pandemic pose threats to the global financial system.

“The outlook for global growth is characterized by high uncertainty, with the potential for continued volatility and unequal growth between countries and sectors,” the council said in its annual report to Congress, released on Friday.

The FSOC was created in the aftermath of the 2008 financial crisis to identify potential risks to US financial stability and to promote market discipline. It includes the heads of major US financial regulators and is chaired by Treasury Secretary Janet Yellen.

The report identified a number of risks to the financial system, including the impact of climate change, high levels of corporate debt, vulnerabilities in short-term debt and commercial real estate markets, and popularity. growing digital assets like bitcoin BTCUSD,
-0.12%
and ETHUSD ether,
+ 0.08%,
as well as meme stocks like GameStop Corp GME,
+ 0.96%.
and AMC Entertainment Holdings Inc. AMC,
+ 1.99%

“Digital assets are a vivid example of financial innovation that has potential benefits and risks,” the report says. “Regulatory attention and coordination is of critical importance in light of the rapidly evolving market for these assets. Because speculation seemed to drive the majority of digital asset activity at the time, the price of digital assets can be very volatile. “

The FSOC also highlighted the dangers climate change poses to financial stability, as rapid changes in the global climate cause more frequent storms, droughts, floods and other natural disasters could force the market to revalue assets. in a destabilizing way.

The financial stability report follows another document released in October that called on financial companies to create and collect data on risks and on the government to put in place policies to reduce carbon emissions.

The current COVID-19 pandemic also continues to pose a threat to the global financial system, according to the report, calling the March 2020 stock market crash an “acute financial crisis” caused by the pandemic. The fact that the US economy rebounded quickly from these events “partly reflected the effectiveness of the extraordinary measures taken by the Federal Reserve to support the functioning of a wide range of financial markets and institutions,” the report said.