The coronavirus (COVID-19) pandemic has caused tremendous human and economic hardship across the United States and around the world. The pandemic and the measures takento contain it have effectively closed some sectors of the economy since mid-March. Economic activity in the United States has contracted at an unprecedented pace, and the unemployment rate surged to 14.7 percent in April.
The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit. Policymakers in the United States and worldwide have taken extraordinary measures to strengthen the recovery once the health
crisis passes. The Federal Reserve quickly lowered its policy rate to close to zero to support economic activity and took extraordinary measures to stabilize markets and bolster the flow of credit to households, businesses, and communities. In addition, the U.S. Congress and
Administration rapidly enacted fiscal measures to support households and businesses. Taken together, these steps contributed to improved conditions that should boost the economic recovery when social distancing and other public health measures are able to subside.
Against this backdrop, this Financial Stability Report reviews the effect of the economic and market shocks associated with COVID-19 on U.S. financial stability to date and discusses the Federal Reserve’s response. While the financial regulatory reforms adopted since 2008
have substantially increased the resilience of the financial sector, the financial system nonetheless amplified the shock, and financial sector vulnerabilities are likely to be significant in the near term. The strains on household and business balance sheets from the economic
and financial shocks since March will likely create fragilities that last for some time. Financial institutions—including the banking sector, which had large capital and liquidity buffers before the shock—may experience strains as a result.
