Informed by academic research, some of it in-house, we at the Federal Reserve focus on four broad cyclical vulnerabilities: (1) financial-sector leverage, (2) nonfinancial-sector borrowing, (3) liquidity and maturity transformation, and (4) asset  2  See Adrian, Covitz, and Liang (2015).
-3valuation pressures.3 Briefly, leverage, across a range of institutions, is a key amplifier of solvency shocks, leading to a greater chance of a credit crunch or fire sale. Liquidity and maturity mismatches can generate run risk, leading to fire sales and contagion. Finally, elevated valuation pressures, especially when combined with high leverage, can lead to excessive credit growth.