The U.S. financial system remains resilient overall, according to the Federal Reserve’s most recent Financial Stability Report, released today, though there are rising concerns about global conflicts, AI and cybersecurity issues.
Despite reporting that the banking sector remains sound overall, the Fed said that more respondents in recent outreach noted risks associated with geopolitical tensions, oil prices and AI than had indicated in last fall’s survey. Fewer participants cited risks related to policy uncertainty. As in previous surveys, respondents continued to note that a successful cyberattack could have particularly severe consequences, the Fed said.
Three-quarters of survey respondents flagged geopolitical risk as their primary concern, the report’s most-cited worry. Seventy percent said oil and gas price hikes were an issue. AI and private credit each were cited by 50% as potential threats to financial stability. According to the report, the ongoing conflict in the Middle East could drive up inflation and slow economic growth in the U.S., particularly if combined with supply shortages and supply chain disruptions.
The Fed said that survey respondents suggested that an increased intensity of malicious cyberattacks could accompany the Iran war and that “recent advances in the ability of large language models and agentic AI systems to detect and exploit vulnerabilities have introduced new challenges in safeguarding system security for financial institutions, infrastructures and third-party service providers.”
Private credit was viewed as facing increasing pressure from investor redemptions, worsening sentiment, and AI-driven disruption affecting the credit quality of some borrowers, which could result in a tightening of credit conditions that could spill over into broader credit markets, the Fed said.
