The Federal Reserve has issued a stern warning about potential losses at banks due to pressures in the commercial real estate sector and heightened interest rates, as per its semiannual supervision report released Thursday. This comes as a response to the collapse of midsize lenders, including Silicon Valley Bank and Signature Bank (OTC:) earlier this year in March.
In an effort to strengthen its oversight, the central bank is ramping up its supervision and intensifying examiner training. This move follows increased concerns voiced by US bank regulators over the commercial real estate sector since June. These regulators have been urging lenders to support credit-worthy borrowers who are currently under stress.
Despite these challenges, the Federal Reserve maintains that the banking system remains robust. The majority of lenders are reportedly well-capitalized, with ample liquidity and minimal reliance on short-term wholesale funding. However, there has been a minor increase in loan delinquencies in certain segments, which adds to the ongoing concerns.
While the current situation presents some risks, the Fed’s intensified supervision and training aims to mitigate these potential threats and ensure stability within the banking system. With most banks being well-capitalized and having ample liquidity, they are perceived to be in a relatively strong position to weather these pressures.
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