The U.S. financial system remains “sound and resilient,” with most banks reporting capital levels well above regulatory requirements and less reliance on uninsured deposits, according to the Federal Reserve’s semiannual Monetary Policy Report, released today. At the same time, the report noted that fair value losses on fixed-rate assets were still sizable for some banks.
Banks’ core loan holdings continued to decelerate in the second half of 2024, growing at a 1.3% annualized rate, down from 1.9% during the first half of the year, according to the report. The subdued loan growth likely reflects still-elevated interest rates and tight lending standards. Delinquency rates remained relatively stable in the second half of 2024 following several quarters of deterioration.
However, the report noted that delinquencies for commercial real estate loans and credit cards remained elevated relative to the pre-pandemic period. In contrast, delinquency rates for commercial and industrial loans remained in line with their pre-pandemic levels. Measures of bank profitability edged down during the second half of last year amid a decline in net interest margins and remain below the levels that prevailed before the pandemic.
The report also noted that loans extended under the Bank Term Funding Program — which was launched following the failures of Silicon Valley Bank and other institutions in 2023 — decreased $106 billion since late June 2024 to $213 million.
