Fed: Large Banks Continue to be Resilient

The nation’s large banks at the core of the financial system “continue to be resilient” while some financial vulnerabilities remain elevated, the Federal Reserve said today in its semiannual monetary policy report. The Fed noted that banks continue to maintain significant levels of high-quality liquid assets, while assets under management at tax-exempt money market funds have declined further since mid-2021.

Bank lending standards have eased across most loan categories, and bank credit has expanded, the report said, adding that “all told, financing conditions have been accommodative for businesses and households.” The Fed said that it continues to evaluate the potential systemic risks posed by hedge funds and digital assets and is closely monitoring the transition away from Libor.

Inflation rose to its highest level since the early 1980s in the second half of 2021, the report said, adding that it is well above the Federal Open Market Committee’s longer-run objective. FOMC members have signaled that it will “soon be appropriate to raise the target range for the federal funds rate,” the report noted.