Thus, our presumption has been that the CCyB would be zero most of the time. Current Assessment of Financial Vulnerabilities When, then, would it be appropriate--given this framework--to activate the CCyB? That is, how do we know when financial vulnerabilities are elevated?
The Federal Reserve continuously monitors vulnerabilities, as highlighted in our recent Financial Stability Report.6Our approach is organized around tracking four broad vulnerabilities that academic research and practical experience have shown can amplify negative shocks and result in outsized losses in the real economy. These are asset valuation pressures, household and business debt, funding risk, and financial-sector leverage.