Fed releases Oversight and Regulation Report

The US Federal Reserve (Fed) has published the November 2023 issue of the "Supervision and Regulation Report" on banking conditions in the country and the Fed's supervision and regulation activities. The report emphasized that the banking sector remains generally sound and that most banks continue to report capital levels above legal requirements. On the other hand, the report pointed out that some banks have experienced significant declines in the fair value of some fixed-interest assets due to the increase in interest rates in the last two years, and that recent earnings performance is in line with pre-pandemic levels, and that average asset and equity returns exceeded 10-year averages in the first half of 2023. The report stated that banks generally have ample liquidity and limited dependence on short-term wholesale funding, and that credit delays have increased in some segments but are still low. The report recalled the recent major bank failures in the US, and noted that the Fed has taken steps to increase the speed, strength and agility of its supervision as appropriate, reflecting the lessons learned from these. The report noted that these steps include conducting targeted examinations of banks with higher interest rate and liquidity risk profiles and providing training on interest rate and liquidity risk management for banks and supervisors. Emphasizing “determination” in strengthening supervisory efforts The report noted that the Fed is committed to taking additional steps to strengthen its supervisory efforts, and that it is also monitoring potential credit deteriorations, particularly in the consumer and commercial real estate lending segments. The report also recalled that the Fed has implemented a new bank supervisory program to enhance supervision of banks engaged in non-traditional and fintech-related activities. The report, which provides an overview of the financial condition of the banking sector, also provides information about the Fed’s recent regulatory policy efforts as well as current supervisory programs and priorities.