Featured Product

    FDIC Publishes 2019 Risk Review on Emerging Credit and Market Risks

    July 30, 2019

    FDIC published the 2019 Risk Review, which highlights emerging risks and exposures in the banking system. This issue of Risk Review provides a summary of conditions in the U.S. economy, financial markets, and banking industry. It also presents key risks to banks in two broad categories—credit risk and market risk. The credit risk areas discussed include commercial real estate, housing, leveraged lending and corporate debt, and non-bank lending. The market risk areas discussed are interest rate risk, deposit competition, and liquidity.

    The key highlights of the 2019 Risk Review include the following:

    • Commercial Real EstateCommercial real estate (CRE) market fundamentals remain favorable as the economic cycle matures. However, outstanding commercial real estate loan balances are rising and competition among lenders to maintain market share in the face of slowing loan growth is increasing, posing risk management challenges. FDIC examination findings since mid-2017 noted opportunities for improvement in risk management practices for CRE-concentrated institutions, particularly in the areas of board governance and oversight and portfolio stress testing. Despite the competitive pressures, CRE credit quality metrics at insured institutions remain satisfactory in early 2019.
    • HousingThe housing market began to slow in 2018 as concerns about affordability intensified. Banks with concentrations in this portfolio could be vulnerable to the slowdown, but credit quality has been resilient so far. Among FDIC-insured institutions, the condition of the residential mortgage portfolio is favorable, but some banks report significant loan concentration levels and increased competition.
    • Leveraged Lending and Corporate DebtCorporate bonds and leveraged loans have become increasingly risky, as the share of low-rated bonds has grown and lender protections in leveraged loans have deteriorated. Direct bank exposure to corporate debt risks is concentrated in funded and unfunded revolving leveraged loans and mortgages, while indirect exposures are opaque.
    • Non-bank Financial Institution LendingBanks are exposed, directly and indirectly, to non-banks. This includes direct lending to nonbank financial institutions. By lending to non-depository financial institutions, banks are increasingly accruing direct and indirect exposures to these institutions and to the risks inherent in the activities and markets in which they engage.
    • Interest Rate Risk and Deposit Competition—The current interest rate environment presents earnings and funding challenges to banks. Rising rates and deposit competition have begun pushing deposit costs higher and are affecting the mix of deposits, particularly at non-community banks. Most banks continue to report net interest margin growth, but banks with rising funding costs and a high proportion of long-term assets may face near-term margin pressure.
    • Liquidity—Short-term liquidity at smaller banks has declined in recent years, potentially reducing these institutions’ ability to manage a future downturn.

     

    Related Links

    Keywords: Americas, US, Banking, Risk Review, Credit Risk, Market Risk, Interest Rate Risk, Liquidity, Commercial Real Estate, Leveraged Lending, FDIC

    Featured Experts
    Related Articles
    News

    EC Delegated Regulation on Specialized Lending Exposures Under CRR

    EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.

    April 14, 2021 WebPage Regulatory News
    News

    OSFI Consults on Minimum Qualifying Rate for Uninsured Mortgages

    OSFI is proposing new minimum qualifying rate for uninsured mortgages under the Guideline B-20.

    April 13, 2021 WebPage Regulatory News
    News

    ECB Updates List of Supervised Entities in EU in April 2021

    ECB updated the list of supervised entities in EU, with the number of significant supervised entities amounting to 115 as of the March 01, 2021 cut-off date.

    April 12, 2021 WebPage Regulatory News
    News

    OSFI Issues Letter on ICAAP Submission and Internal Audit of BCAR

    OSFI issued a letter to confirm that a formal Internal Capital Adequacy Assessment Process (ICAAP) submission is not required in 2021.

    April 12, 2021 WebPage Regulatory News
    News

    EC Agrees to Prolong Scheme to Support NPL Reduction at Greek Banks

    EC has approved the prolongation of an existing Greek scheme aiming to support the reduction of nonperforming loans, or NPLs, of Greek banks on the basis that it remains free of any State aid.

    April 09, 2021 WebPage Regulatory News
    News

    EIOPA Study Examines Internal Model Market and Credit Risks Under SII

    EIOPA published a report presenting the results of its yearly study on the internal modeling of market and credit risks under the Solvency II Directive, also known as SII.

    April 09, 2021 WebPage Regulatory News
    News

    ESMA Issues Notification Templates for STS Synthetic Securitizations

    ESMA published the interim simple, transparent, and standardized (STS) notification templates for synthetic securitizations, post the recent amendments to the Securitization Regulation.

    April 09, 2021 WebPage Regulatory News
    News

    EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    EBA Updates Lists of Entities for Use in Capital Calculations under SA

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    FED Proposes to Automate Bank Stock Adjustment Using Call Report Data

    FED published a proposal to automate non-merger-related adjustments to member banks' subscriptions to Federal Reserve Bank capital stock.

    April 08, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6835