<Is it possible the banks, including the FED, have learned their lesson from the Great Financial Crisis? Could it be that the banks are now better prepared for a housing slowdown/recession than they ever have been?
Also, I’m thinking that with AI, loans are being made with greater care so as to minimize delinquency rates and foreclosure rates.>
I agree that what you are saying is true.
That makes me think that the Fed’s Financial Stress Index (FSI) may be tailored to show the stress on banks, which are the responsibility of the Fed. That certainly makes sense. Thank you for pointing it out.
It also means that the Fed’s FSI may be less appropriate for what I am using it for – an indicator of stress in financial asset (stock and bond) markets. If the banks are not in danger the FSI would be low even if the risk in financial markets is high. During the 2008 and 2020 crises the banks were in danger, especially in 2008. In 2020, the Fed immediately came to the rescue with massive, unprecedented loan programs and quickly defused the crisis.
From now on, I will use the Treasury’s FSI which includes the stock market actions and volatility instead of the Fed’s FSI.
Kudos to you for explaining this refinement.
Wendy