The Federal Reserve Bank of Cleveland opened its 2025 Financial Stability Conference, marking the thirteenth year of the event. The conference brings together researchers, regulators, and industry practitioners to discuss risks and resilience in the financial system.
In her welcoming remarks, Loretta J. Mester, President and Chief Executive Officer of the Cleveland Fed, reflected on the origins of the conference following the Global Financial Crisis and noted its continued relevance. “After 13 years, this series has proven its value as the place to be for financial stability researchers, regulators, and practitioners. It was created at a time when the Global Financial Crisis was still fresh in our minds. Since then, many of you have contributed to a growing body of work identifying new vulnerabilities in the financial system and developing tools to counteract shocks that come our way. The pandemic shock—and the Fed’s robust and effective response—was a sharp reminder that when it comes to financial stability, you can never let your guard down.”
Mester emphasized that promoting financial stability is central to the Federal Reserve’s mission. She stated: “The Fed has a strong interest in financial stability, and not only because promoting it is one of our core functions. Financial stability supports our other objectives: fostering a safe and sound banking system, an efficient payments system, community development, and our monetary policy objectives of maximum employment and stable prices.”
She defined a stable financial system as one resilient to shocks and capable of providing necessary financing for households, communities, and businesses. According to Mester’s current assessment: “Right now, my view is that the financial system meets this definition. Banks are better capitalized than they were a few years ago, despite lingering effects from unrealized losses on securities and loans from some older assets. Equally important, households in the aggregate are in good financial shape. While leverage is elevated in some parts of the financial system—including among hedge funds and life insurers—the overall picture appears sound.”
Mester highlighted several risks on her watchlist:
First was private credit growth and related transparency issues. She noted recent high-profile bankruptcies as reminders that private credit markets warrant close monitoring: “Though some might say the credit defaults were unusual because they may be tied to fraud and limited due diligence, the underlying factors—strong credit supply and strong demand for credit assets—suggest that they might not be isolated events.” She also pointed out concerns about opacity: “Private credit and loans to private firms usually offer less in the way of public financial information compared with bank loans… The opacity of the lending along with private credit’s liability structure make it easier to roll over loans and delay recognition of losses…”
Second on her list were stablecoins—a fast-growing sector within digital finance—with volume reportedly increasing by 70 percent this year according to private-sector estimates. Mester referenced regulatory changes but indicated unresolved questions remain: “While the GENIUS Act established a new regulatory framework around payment stablecoins, there are still open questions about what sort of guardrails might be called for as this sector continues to grow compared to other areas like bank deposits and money market funds.” She raised issues regarding use cases for stablecoins domestically or internationally; their interaction with fiat money systems; asset backing; cyber-attack risks; absence of deposit insurance; and potential risk exposure if portfolios include higher-yielding but riskier assets.
Mester also discussed challenges posed by persistent inflation above target levels combined with signs of labor market softening: “Inflation has been running above the Fed’s 2 percent objective for four and a half years… Lowering interest rates to support the labor market risks prolonging this period of elevated inflation…” She cautioned that accommodative policy could encourage risky lending practices or delay loss recognition.
She concluded by expressing confidence in current systemic strength but urged ongoing vigilance: “To sum up, the financial system is in good shape. But there are enough risks out there to keep all of your financial stability research agendas full.”
Keynote speakers at this year’s conference include Itay Goldstein from University of Pennsylvania and Vice Chair Philip Jefferson from the Board of Governors.
The Cleveland Fed serves Ohio as well as parts of Pennsylvania, West Virginia, and Kentucky by producing economic indicators related to inflation, employment trends, supervision over regional banks’ health practices supporting consumers’ security needs while maintaining US Treasury payment systems.
