The U.S. banking system remains resilient but there are pockets of potential vulnerability that need continued monitoring, such as in the areas of commercial real estate, third-party relationships and cybersecurity, the Financial Stability Oversight Council said today in its 2024 report on stability risks to the U.S. financial system.
The 140-page report lists a broad range of potential risks facing the financial system and proposes regulatory and legislative actions to address those issues. The FSOC is comprised of 10 voting and five nonvoting members, including the heads of several federal agencies who are appointed by the president. As a result, the priorities outlined in the current report are likely to change under the incoming Trump administration.
Among its findings, the FSOC said that signs of increasing CRE risk became more evident in 2024, with a continued rise in vacancies, slower rent growth and increased borrowing. Office properties remain “the most concerning subsector” with vacancy rates reaching 10-year highs. Risks have also risen among multifamily properties, with elevated vacancy rates and significant increases in supply in some markets. The council recommended that its member agencies “ensure that financial institutions continue to monitor these correlated risks in their risk management and contingency planning.”
As for depository institutions, the FSOC said banks have been working to enhance access to liquidity since last year’s Silicon Valley Bank failure. Still, it recommended that supervisors continue encouraging institutions to engage in effective liquidity management and planning, including by ensuring they can access contingent liquidity facilities. It also encouraged agencies to finalize a regulatory proposal concerning long-term debt planning for large banks, and to continue work to adopt Basel III endgame reforms.
The FSOC also cited third-service providers as a potential threat to financial stability, given their “critical role in financial institutions’ delivery of products and services.” It recommended that Congress pass legislation to ensure that the Federal Housing Finance Agency, National Credit Union Administration “and other relevant agencies” have the resources needed to oversee providers that interact with regulated entities.
Cybersecurity was again listed as a potential risk although the FSOC noted that no cyber incidents have had significant system-wide effects so far. Still, the number of cyberattacks has doubled since before the COVID-19 pandemic, according to the report. Ransomware continues to be a prominent threat, and insider threats continue to pose a significant risk to the integrity and security of financial institutions, the council said. Also, advancements in digital assets, artificial intelligence and quantum computing can provide new vectors for threats.
