Banks have been a source of strength during the ongoing pandemic in part because of the regulatory framework put in place after the 2008 financial crisis, Federal Reserve Vice Chairman for Supervision Randal Quarles said today. “We did not see a recurrence of the problems faced by the banking sector during the [2008 financial crisis], and the financial system and the economy would have been much worse off if we had seen it.”
With regulators’ encouragement, banks have been working with their customers and agreed to grant forbearance to millions of borrowers, Quarles said. “At the same time, banks have recognized that the credit quality of many loans has deteriorated considerably, and they have made sizable provisions to prepare for expected loan losses.”
In March, commercial and industrial loans in the banking system rose by almost $480 billion as companies drew on lines of credit, the largest monthly increase on record, and “banks were able to fund these loans without notable problems,” Quarles said. He noted that the coronavirus pandemic created the most abrupt decline in U.S. and global economic activity in recorded history but that “it is heartening that the banking system remained resilient and that policy efforts were able to calm financial markets relatively quickly.”
