The U.S. banking sector remains strong overall, with banks maintaining strong capital and liquidity levels while seeing healthy loan growth and profitability, according to the Federal Reserve’s supervision and regulation report released today. The report noted particularly strong growth in commercial and industrial and commercial real estate lending.
As lending conditions remain strong overall, the Fed did flag that the nonperforming ratio for consumer loans has been trending upward since mid-2015, though it remains low by historical standards. At the same time, the reserve coverage ratio—the amount of reserves set aside to cover losses—has risen steadily, generally indicating a better ability to absorb losses. Meanwhile, the share of banks considered not well-capitalized continued to fall, amounting to only about one-half percent as of the second quarter of 2019.
Looking ahead to 2020, the Fed said its supervisory priorities will be reviewing emerging risks and their potential effects on large firms and reviewing actions firms have taken to address previously identified safety and soundness weaknesses. For regional and community banks, the Fed said it will focus on concentration and operational risks, as well as other priorities including Bank Secrecy Act/anti-money laundering compliance, Libor transition risk and the implementation of the current expected credit loss standard.