Federal Reserve Points to Improved Resiliency and Risk Management at Large Banks in Latest Reports

3 Dec 2019
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Resiliency

The Federal Reserve last month highlighted a number of important advancements to the strength and resiliency of large financial institutions in its regular Supervision and Regulation and Financial Stability reports.  “The safety and soundness of large financial institutions continue to improve,” the Supervision and Regulation Report said.  Following are highlights of the reports as they relate to the eight members of the Financial Services Forum:

1. Risk management improves at large banks

“The general trend in the overall level of supervisory findings indicates improved risk management” at 12 large banks operating in the United States, including the eight Forum members, the Fed said in its Supervision and Regulation Report.  Notably, the central bank said that the number of supervisory findings for this group had fallen significantly during the past five years. 

As firms implemented and sustained improvements in governance, risk management, and controls, more supervisory findings were closed than were issued, resulting in an overall 35 percent reduction in outstanding findings,” the Fed said.  

2. Capital positions robust

The Federal Reserve in both reports highlighted strong capital levels at large banks. 

The largest U.S. banks remain strongly capitalized,” the Fed said in its Financial Stability Report.   “Solvency risk at the largest banks appears to have remained low, and the results of the most recent stress test … indicated that these banks are well positioned to continue lending to households and businesses even in the event of a severe global recession.”

The eight members of the Financial Services Forum have increased their Tier 1 capital by 43 percent since 2010.  Capital acts as a buffer for banks to absorb unexpected losses.

Source: FR Y-9C data

3. Liquidity strong

Liquidity positions at large banks are also strong and these institutions are less reliant on sources of funding that are prone to bank runs, the Fed said in its latest Financial Stability Report. 

The ratio of high-quality liquid assets to total assets remains high at large banks,” the Fed said.  In the Supervision and Regulation Report, the Fed said, “Currently, all large financial institutions regulated by the Federal Reserve maintain enough liquid assets to withstand a month of stressed liquidity outflow.”

Liquidity is important because it acts as a measure of the ease with which a bank could meet immediate requests for funding from customers.

The eight Financial Services Forum members have more than doubled their high-quality liquid assets since 2010 to nearly $2.4 trillion.

Source: FR Y-9C data

Conclusion

The members of the Financial Services Forum are major employers and serve customers, communities, and investors across the country.  Forum members have made significant strides in promoting the safety and soundness of their institutions in the past decade.  Bank supervisors including the Federal Reserve have pointed toward this progress.

“Large financial institutions are in sound financial condition,” the Fed said in its Supervision and Regulation Report. 

The members of the Forum will continue to work with supervisors and policymakers to promote the efficiency and effectiveness of the financial system. 

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