The U.S. banking system stays sound and durable, with strong levels of capital and liquidity, though the Federal Reserve highlighted a requirement for watchfulness when it pertains to keeping track of for danger, according to its most current guidance and policy report launched today. As financial unpredictabilities and increasing rates of interest continue, the Fed kept in mind that banks are dealing with increased credit, liquidity and rate of interest threats. Interest rate danger, along with threats from focused financing sources, contributed in the current failures of 3 big U.S. banks, the report stated.
Liquid possessions—consisting of money and securities—decreased in the 2nd half of 2022, the report discovered. “Significant declines in the fair value of securities, combined with high levels of uninsured deposits, can elevate liquidity risks, as seen with the failure of Silicon Valley Bank,” the Fed stated, keeping in mind that banks now have access to extra liquidity through the Fed’s brand-new Bank Term Funding Program, which was developed in the consequences of the Silicon Valley Bank and Signature Bank failures.
While loan delinquency rates stay low, the Fed stated it expects those rates to increase as rates of interest continue to stay raised. “[Commercial real estate] loan performance is also being monitored closely given potential deterioration in the office segment stemming from the trend toward working from home,” the report stated. Meanwhile, capital levels stay well above regulative minimums.
