The banking sector remains strong as most banks’ regulatory capital levels are either approaching or exceeding record highs, according to the Federal Reserve’s first Financial Stability Report for this year. .Most domestic banks continued to have high levels of liquid assets and stable funding, with their dependence on uninsured deposits remaining under the relatively high levels of 2022-23. Bank profitability measures continued to improve at the end of last year, according to the Federal Reserve, with net interest margins supported by banks’ average interest rate on interest-earning assets remaining well higher than the average interest rate paid on liabilities. Delinquency rates for commercial and industrial and commercial real estate loans increased in the second half of last year, while delinquency rates for credit card and auto loans were essentially unchanged and remained higher than their pre-COVID levels, according to the Federal Reserve. Banks’ CRE portfolios include a significant number backed by office and multifamily properties in which relatively feeble fundamentals begin to show signs of improvement. “Transaction-based prices for commercial properties have been flat recently, but a sizable number of borrowers will need to refinance maturing loans in the next few years,” according to the Federal Reserve. Despite drops in asset prices amid market volatility, valuations remained high across equities and residential real estate, according to the report. Liquidity in Treasury and equity markets was low and weakened in April, though market functioning remained steady. “Fair value losses on fixed-rate assets were still sizable for some banks and continued to be sensitive to fluctuations in interest rates,” according to the Federal Reserve. “Broker-dealer leverage has been low, though in April heightened client demand has reportedly increased balance sheet pressures for some dealers.” Vulnerabilities from business and household debt remained manageable, as the ability of businesses to service their debt improved even as leverage was higher than usual. Auto and credit card loan delinquencies remained above pre-pandemic averages. According to the report, 73 percent of contacts listed risks to global trade as a threat to the financial system and global economy, up from 33 percent in the fall. Forty one percent listed persistent inflation as a threat, up from 33 percent last fall.
The banking sector remains strong as most banks’ regulatory capital levels are either approaching or exceeding record highs, according to the Federal Reserve’s first Financial Stability Report for this year. .Most domestic banks continued to have high levels of liquid assets and stable funding, with their dependence on uninsured deposits remaining under the relatively high levels of 2022-23. Bank profitability measures continued to improve at the end of last year, according to the Federal Reserve, with net interest margins supported by banks’ average interest rate on interest-earning assets remaining well higher than the average interest rate paid on liabilities. Delinquency rates for commercial and industrial and commercial real estate loans increased in the second half of last year, while delinquency rates for credit card and auto loans were essentially unchanged and remained higher than their pre-COVID levels, according to the Federal Reserve. Banks’ CRE portfolios include a significant number backed by office and multifamily properties in which relatively feeble fundamentals begin to show signs of improvement. “Transaction-based prices for commercial properties have been flat recently, but a sizable number of borrowers will need to refinance maturing loans in the next few years,” according to the Federal Reserve. Despite drops in asset prices amid market volatility, valuations remained high across equities and residential real estate, according to the report. Liquidity in Treasury and equity markets was low and weakened in April, though market functioning remained steady. “Fair value losses on fixed-rate assets were still sizable for some banks and continued to be sensitive to fluctuations in interest rates,” according to the Federal Reserve. “Broker-dealer leverage has been low, though in April heightened client demand has reportedly increased balance sheet pressures for some dealers.” Vulnerabilities from business and household debt remained manageable, as the ability of businesses to service their debt improved even as leverage was higher than usual. Auto and credit card loan delinquencies remained above pre-pandemic averages. According to the report, 73 percent of contacts listed risks to global trade as a threat to the financial system and global economy, up from 33 percent in the fall. Forty one percent listed persistent inflation as a threat, up from 33 percent last fall.
