The banking industry demonstrated resilience despite weaker economic conditions, sharply higher interest rates, high inflation and financial market stress in early 2023, the FDIC concluded in its 2023 Risk Review of the banking sector, published today. At the same time, the report noted that banking industry performance has moderated since 2022, although asset quality metrics for the industry overall remained favorable through the first quarter, and the sector remained well capitalized.
Looking ahead, weaker economic conditions and higher interest rates may challenge bank loan portfolios, including credit card, commercial and industrial, residential real estate and commercial real estate loans, according to the report. Banks have substantial exposure to CRE lending as CRE loans comprised a quarter of total loans held by the banking industry as of Q1, the agency said. Potential signs of consumer loan problems have emerged at banks as the total past-due rate on credit cards and auto loans rose. The FDIC also noted that operational risks, including cybersecurity risks and risks related to illicit financial activity, remained elevated across the industry.