The FDIC today stated that the banking environment enhanced in 2021 as the economy recuperated from a duration of financial difficulty the year prior. In its yearly threat evaluation, the firm kept in mind that monetary market conditions “were generally supportive of the economy and banking industry” throughout 2021, though they started to weaken with the start of the Russian intrusion of Ukraine in early 2022.
Banks reported “substantially higher net income in 2021, primarily due to lower credit loss provisions,” the firm stated, with banks reporting a substantial 89.7% boost year-over-year. Meanwhile, net interest margin decreased, in spite of a small boost in net interest earnings and strong property development, the FDIC kept in mind.
Bank liquidity stayed strong in 2021, as the market saw a record boost in deposits, which “resulted in high levels of cash on bank balance sheets while lending growth remained slow, contributing to higher levels of liquid assets.” While market threat stayed moderate total, the FDIC did care that increasing rates of interest “could be a source of risk for banks with substantial exposure to longer-term assets.”
In evaluating the crucial threats to the banking system, the FDIC discovered that credit conditions usually enhanced total in 2021 however flagged different sector-specific difficulties that might emerge in the months ahead. Meanwhile, functional threats—consisting of cyber threats and threats connected to illegal financing—stay “elevated,” the FDIC stated. The firm likewise flagged climate-related monetary threat as a location of emerging threat.