Banks Remain Resilient but Risks Persist

Posted: Oct 25 2023

The banking system remained sound and resilient as risk-based capital ratios remained close to average levels over the past decade, the Federal Reserve said in the second of its biannual financial stability reports. However, high interest rates continued to depress the fair value of longer-maturity, fixed-rate assets that were sizable for some banks, the agency added.
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Most domestic banks have ample liquidity and limited reliance on short-term wholesale funding, according to the report. Still, some banks continued to face funding strains, likely owing to vulnerabilities associated with high levels of uninsured deposits and declines in the fair value of assets. The Bank Term Funding Program—created in the wake of the Silicon Valley Bank and Signature Bank failures—helped mitigate those strains, the report said.
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Near-term risks to the financial system include the possibility of a significant slowdown in economic growth that could precipitate strains in commercial real estate, persistent inflation, a further slowdown in Chinese growth and worsening geopolitical tensions.

To read more, visit: https://www.federalreserve.gov/publications/files/financial-stability-report-20231020.pdf