The Office of Financial Research has released the 2016 Financial Stability Report, outlining and assessing potential threats to the stability of the U.S. financial system, describing key OFR findings and insights, and documenting progress in meeting OFR’s mission. The report cites theses key threats:

• Potential spillovers from Europe — The United Kingdom’s vote to leave the European Union created long-term uncertainty, as risks increased for some large interconnected European banks whose profits are hobbled by nonperforming loans, slow growth, and low or negative interest rates.
• Credit risks in U.S. nonfinancial corporations — High levels of debt among nonfinancial companies continued to grow at a rapid rate. The ratio of debt to gross domestic product for these companies is near an all-time high, growing at a much faster rate than debt levels among financial businesses and households.
• Cybersecurity incidents — Financial institutions are vulnerable to cybersecurity threats because they are entwined in complex networks that rely on electronic transactions. Three possible risks to financial stability are lack of substitutability, or the ability of the financial system to replace lost services; loss of confidence in financial institutions; and impact on data integrity.
• Central counterparties as contagion channels — Clearing by central counterparties (CCPs) reduces the risk to each party in the transaction from the other party defaulting, but also concentrates risk in the CCP itself. CCPs are vulnerable to defaults by their clearing members, typically large and interconnected banks. The reports discuss OFR analysis of new data and stress test results that shed new light on CCPs.
• Pressure on U.S. life insurance companies — U.S. life insurers face an array of risks, including pressure on earnings from low long-term interest rates, sensitivity to stock prices, and growing exposures to some retirement products. The reports also cite life insurers’ interconnectedness with global systemically important banks.
• Systemic footprints of the largest U.S. banks — Although reforms after the financial crisis made the largest banks more resilient, the potential impact of a large bank failure remains substantial. The size, complexity, and interconnectedness of the largest banks constitutes a key threat to financial stability. Weaknesses in the banks’ resolution planning are also a concern.
• Deficiencies in data and data management — Risk managers and regulators have better data than ever before, but deficiencies in data scope, quality, and accessibility continue to prevent a full assessment of risks. To facilitate data sharing, the OFR has signed more than 50 memorandums of understanding with federal, state, and overseas regulators. 

Read the full report.