Bank profitability continued to be healthy in the second quarter of 2022, in line with pre-pandemic levels and broadly unchanged from the previous quarter, the Federal Reserve said in its latest financial stability report released today. The Fed noted banks’ risk-based capital ratios have remained in the middle of the range that has prevailed since 2010, and stress tests show the system remains resilient to a severe recession.
Funding risks at domestic banks are low given their large holdings of liquid assets and limited reliance on short-term wholesale funding, according to the report. However, the Fed noted structural vulnerabilities persist at money market funds, some other mutual funds and stablecoins.
Bank lending to financial institutions operating outside the banking sector reached a new high of almost $2 trillion in the second quarter of 2022, the report said. The increase was broad based and most pronounced in private equity, business development companies and credit funds.
The report noted that persistently high inflation and higher interest rates could pose risks to the economy and the financial system. It also said that shocks caused by cyber events—especially cyberattacks—could impair the system.