The Board of Governors of the Federal Reserve System (FED) published a report that summarizes banking conditions in the United States, along with the supervisory and regulatory activities of FED. This semiannual report highlights that, in the first half of 2021, banking conditions continued to improve from the already strong position in 2020, with banks continuing to report robust levels of capital and liquidity. Capital ratios were above regulatory requirements at nearly all banks, providing a buffer against losses and support for lending. Early signs of loan growth emerged, the loan delinquency rate fell, bank profitability increased, and loans in forbearance declined. However, the average net interest margin in the banking sector remains low.
Meanwhile, the report also mentions that loan growth has been weak overall, even if early signs of loan growth are emerging. Total loans grew through May 2020, boosted by commercial and industrial loan commitment drawdowns and Paycheck Protection Program (PPP) loan originations, but then declined 5% in the last half of 2020. However, the decline in loans stabilized in early 2021 and some signs of growth have emerged. Total loan balances were flat in the first quarter of 2021 but have increased slightly since. Consumer loans and residential real estate loans, which were a drag on total loans in 2020, recently turned higher and commercial real estate loans have continued to rise. All consumer loan categories rose in the second quarter of 2021, leading total consumer loans to increase 3% from the prior quarter.
The findings indicate that commercial real estate loans warrant continued monitoring. The impact of pandemic on commercial real estate loan performance has been softened by the governmental response. However, concerns remain about the future performance of commercial real estate properties. Banks are a critical funding source of commercial real estate debt and held approximately half of the USD 5 trillion total loans outstanding to the U.S. commercial real estate market at the end of the second quarter of 2021. Supervisors have observed that banks have been actively monitoring commercial real estate loans and downgrading them appropriately. Banks worked with their commercial real estate borrowers and granted loan modifications. As the economy and the commercial real estate market continue to recover, FED encourages banks to maintain sound underwriting standards. FED plans to closely monitor commercial real estate loans and will remain focused on higher risk properties; it will also focus on monitoring banks that hold higher concentrations of loans secured by commercial real estate.
Keywords: Americas, US, Banking, Lending, Commercial Real Estate, Regulatory Capital, Credit Risk, COVID-19, Basel, SMEs, FED
Previous ArticleEBA Publishes Standards to Calculate Risk-Weights of CIUs Under CRR
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.
The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.
The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.
The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.
The Central Bank of Egypt (CBE) published a circular with instructions on emergency liquidity assistance to banks that are unable to meet their liquidity requirements.
The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.
The Australian Prudential Regulation Authority (APRA) updated the list of authorized deposit-taking institutions, granting license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.