The U.S. banking system remains sound and resilient, with strong asset quality and earnings, but pockets of elevated risk pose challenges for some banks with commercial real estate remaining an area of concern, the Federal Reserve said in its most recent supervision and regulation report, released today.
The biannual report noted that most banks continued to report capital levels well above applicable regulatory requirements. More than 99% of banks were well-capitalized in the second quarter of the year, and Fed stress tests showed that large banks are well-positioned to weather a severe recession. Banks with less than $100 billion in total assets also continued to report strong regulatory capital levels.
Total loan delinquency rate remained below 1% in the first half of 2024, according to the report. However, delinquency rates for CRE loans and consumer loans were elevated. Most deterioration in CRE loans was concentrated in large banks but the delinquency rate for CRE loans at small banks also increased. As a result, credit risk remains a supervisory priority for the Fed.
Cybersecurity is another supervisory priority, according to the report. “Supervisors are assessing whether banks have adequate risk management, governance and controls to protect their data and operations against cybersecurity threats,” the report states. “Supervisors are also examining and monitoring, pursuant to the [Fed] board’s authority under the Bank Service Company Act, certain services performed on behalf of financial institutions by their service providers.”
