Tracking Recent Levels of Financial Stress
The Cleveland Financial Stress Index (CFSI) has remained in Grade 2, or within a “normal stress” level, since the index was revised in April 2013, when new submarkets were added and updates began to be posted on a daily basis. The trend in financial stress over the previous three months is most likely due to continuing improvements in financial markets.
As of July 9, the index stands at −0.39, which is up 0.09 points from a recent low on May 20, 2013. The index is down 1.47 points over the past year and is 3.35 points lower than its historical peak in December 2008.
The CFSI incorporates measures of stress for each of the major financial submarkets: credit, funding, equity, foreign exchange, real estate, and securitization. As a result, the total level of system stress can be decomposed to gauge the level of stress in each of these submarkets and the contribution each makes to system stress (see the working paper). Although the overall CFSI has remained low, recently there have been increases to the amount of financial stress generated by the equity market. Conversely, the contribution from the securitization market has trended downward.