Fed report: Banking sector remains sound

The banking sector remains sound overall and most banks continue to report capital levels above regulatory requirements, the Federal Reserve said Thursday in the second of its biannual reports to Congress on supervision and regulation. The report, released ahead of congressional oversight hearings next week, also stated that some banks have experienced sizeable declines in the fair value of some fixed-rate assets, reflecting the increase in interest rates over the past two years.

“Recent earnings performance has been in line with pre-pandemic levels, and returns on average assets and equity for the first half of 2023 exceeded their 10-year averages,” the Fed said. “Overall, banks have ample liquidity and limited reliance on short-term wholesale funding. Loan delinquencies are rising in some segments but are still low.”

The report also noted that along with other banking regulators, the Fed is proposing to modify capital requirements and impose a long-term debt requirement for financial institutions with at least $100 billion in total assets. The agencies announced in October they had extended the public comment period on the proposed capital requirements to Jan. 16, 2024, after ABA and other industry organizations said the proposal relies on data and analyses that federal agencies have not made publicly available, in violation of their legal obligations. ABA responded that while it appreciated the comment period had been extended, that wasn’t enough to fix “a fundamentally flawed process.”