OCC: Banking system remains sound

The federal banking system is sound, with banks focused on stabilizing liquidity and maintaining confidence in the system, the Office of the Comptroller of the Currency said today in its annual report to Congress. The federal banking system comprised 1,062 banks and federal branches as of Sept. 30, with 753 banks with less than $1 billion in assets and 55 with more than $10 billion, the agency said. In total, the banks within the system hold $15.4 trillion, or 66%, of all assets of U.S. banks and more than more than 73% of credit card balances in the country.

The federal banking system’s liquidity ratio stood at 19.3% of assets in the first half of 2023, a slight decline from 2022’s liquidity ratio of 20.8%, but well above the pre-pandemic long-term average of 7.6% from 1984 to 2019, the OCC said. The system was also well capitalized. The tier 1 leverage ratio stood at 8.8% in the first half of 2023, gradually increasing for the third consecutive year and steadily returning to its pre-pandemic high of 9.4% in 2018. System profitability remained healthy through the first half of 2023, supported by net interest margins.

Credit quality ratios inched up slightly in the first half of 2023 but remained below their long-term average, OCC said. The rate of nonperforming loans was 0.8%, unchanged from last year and well below the historical average of 2.3%. Net charge-offs as a share of total loans rose to 0.5% as of June 2023 from 0.3% in 2022. Despite the recent uptick, net charge-offs remain below the pre-pandemic average of 0.9%, the agency said.