Drew Angerer/Getty Images News
Banks appear well positioned to absorb a shock, with the ratio of Tier 1 common capital to risk-weighted assets rising for all types of banks, Federal Reserve Governor Lisa Cook said on Wednesday. And the ratio for the largest banks is at multi-decade highs, he noted.
However, some regional banks experienced large deposit outflows last spring. Conditions have improved since then, he said. For example, most institutions have reduced their reliance on uninsured deposits since early 2023.
Regarding funding risks, Cook said that “monetary funds have inherent funding vulnerabilities that regulators have been taking steps to address.” To help address this, reforms adopted by the SEC will take effect this year and will “improve funds' liquidity positions and address the structural first-mover advantages among money-fund investors that contributed to some of the runs that we have seen in this sector”. Through the years.”
Meanwhile, concerns about the commercial real estate sector have led the Federal Reserve to step up supervisory work with community and regional banks that have a significant concentration of CRE. “All told, I view CRE risks as currently considerable but manageable, and I will pay close attention to the sector in the short and medium term,” he said.
Another sector to look for risks to financial stability is private credit, with growth in assets under management of private credit funds estimated at $1.1 trillion by September 2023. “Overall, I think the “Private credit growth is unlikely to have negatively affected the resilience of the financial system,” Cook said. “Private credit funds appear well positioned to hold the riskiest parts of corporate lending.”
He said he will be monitoring the contribution of private credit to the overall leverage of the business sector and the evolution of the interconnection between private credit and the rest of the financial system.
Household debt does not appear to be of concern at this time, Cook said. Compared to the level of GDP, household debt is lower than it has been in many years.
“However, we are also attentive to possible changes in this evaluation,” he said. saying. “For example, I am closely monitoring rising delinquency rates on auto loans and credit card debt (both partially reflecting a normalization from recent lows) because they imply increased stress for household borrowers, especially among some low and moderate income households.”
Cyberattacks also pose a risk to financial stability. In examining cyberattacks, the Federal Reserve focuses on the operational resilience of the institutions it oversees, the service providers used by those institutions, and the financial services provided by the Federal Reserve. “We have also begun to incorporate timely data analytics on enterprise-level cyber vulnerabilities and interconnections between enterprises and with service providers to monitor system-level cyber vulnerabilities,” he said.
In development…check back for updates.
