Monday, October 12, 2020

What we owe to ourselves

The SEC's Division of Economic and Risk Analysis published a staff report, U.S. Credit Markets: Interconnectedness and the Effects of the COVID-19 Economic Shock.

The report provides details on the issuers and holders of credit, as well as the intermediaries who facilitate credit transmission. Its goal is to assist policymakers in their efforts to understand and improve market functioning and resilience.

By the end of 2019, aggregate US credit outstanding was $54 trillion. Here's the high-level credit risk map and a couple observations they include with it:

"First, the federal government ($16.6 trillion), households ($10.6 trillion of mortgages and $4.2 trillion of other consumer debt), and corporations ($13.7 trillion in bonds and loans) are the primary issuers of credit...

"Second, the largest ultimate holders of credit are households with about $14 trillion of credit risk exposure ($4.4 trillion directly and $9.2 trillion indirectly through nonbank financial intermediaries, e.g., mutual funds). Another important channel of households' exposure to credit risk is banks that own $13.2 trillion of credit risk... Other major holders of credit in the capital market are foreign buyers who hold more than $10.9 trillion, insurance companies that hold about $5.6 trillion, and pension funds with more than $4.8 trillion...

"Third, nonbank intermediaries ... account for approximately $23 trillion of credit that flows from issuers to holders of credit. Federal agencies and GSEs intermediate $9.4 trillion, MMFs intermediate $3.6 trillion, and RICs [registered investment companies] and REITs another $6.4 trillion."

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