The OFR said that reaching for yield along with vulnerabilities from heavy debt loads and eroding credit quality in emerging markets will increase the U.S. financial system’s susceptibility to shocks.
Rapid, sharp declines in market liquidity could also pose a threat to financial stability, the research unit said. Regulators are studying ways they can prevent that to help the U.S. Treasury market operate more smoothly. They want to avoid the kind of sudden price swings that occurred on Oct. 15, 2014, when Treasury yields fluctuated in a way that had only happened three other times since 1998.