US banks are re-evaluating the value of the US equities as a hedge against inflation and a way to protect themselves against the financial market’s volatility, according to a new report.
The analysis, released by the US Commodity Futures Trading Commission, found that as the economy strengthens and as more Americans get jobs, they are buying assets that are more stable than other asset classes, such as stocks, bonds and gold.
The report also found that many US banks, as well as other US investors, are seeing a higher return on assets that have historically been highly volatile.
“In recent years, the risk of financial crisis has become less likely, which has encouraged banks to diversify their investments, including equities and other investments in companies and other assets,” the report said.
This includes the use of derivatives to protect against a potential financial crash, it said.
While this is an important strategy, it is not enough, the report added.
The risk that the US financial system could be in the crosshairs of a financial meltdown is too great, the CFPB warned.
In particular, banks that are trading derivatives on a daily basis are more susceptible to market swings and to other financial risk.
“The risk of an economic or financial crisis is not going away,” said Michael Auerbach, the chair of the CTFCC, in a statement.
It’s a time of unprecedented uncertainty and financial volatility, he added.
“We need to prepare for this.”
Auerbach said the CTC’s report highlights the need for the banking industry to “prepare for a future where the risks associated with financial derivatives are less severe”.
“This includes investing in the future, which is the next step for the financial system,” he said.
“Banks must become more resilient in their investments.”
The CFPC report comes a week after the Fed said it was exploring the possibility of easing monetary policy in the coming months, although no decision has been made.