Executive Summary

The banking sector remains sound overall, and most banks continue to report capital levels above regulatory requirements. Nevertheless, some banks have experienced sizeable declines in the fair value of some fixed-rate assets reflecting the increase in interest rates over the past two years. Recent earnings performance has been in line with pre-pandemic levels, and returns on average assets and equity for the first half of 2023 exceeded their 10-year averages. Overall, banks have ample liquidity and limited reliance on short-term wholesale funding. Loan delinquencies are rising in some segments but are still low.

The Federal Reserve is taking steps to enhance the speed, force, and agility of its supervision, as appropriate, to reflect lessons learned from the recent large U.S. bank failures and its supervision of Silicon Valley Bank. These include improving its supervision of liquidity and interest rate risks by conducting targeted reviews at banks exhibiting higher interest rate and liquidity risk profiles, as well as conducting focused training and outreach on supervisory expectations for interest rate and liquidity risk management for banks and examiners. The Federal Reserve is committed to taking additional steps to strengthen its supervisory efforts.

The Federal Reserve is also monitoring for potential credit deterioration, particularly within the consumer and commercial real estate (CRE) lending segments. Additionally, the Federal Reserve has implemented a new novel bank supervision program to improve oversight of banks engaged in nontraditional and financial technology-related activities.

This report focuses on developments in three areas:

  1. Banking System Conditions provides an overview of the financial condition of the banking sector.
  2. Regulatory Developments outlines the Federal Reserve's recent regulatory policy work.
  3. Supervisory Developments highlights the Federal Reserve's current supervisory programs and priorities.
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Last Update: November 14, 2023