Federal Reserve Points to Important Contributions of Large Banks to Pandemic Response

10 Nov 2020
Read Time 2 mins
Categories :
Bank Capital
, Resiliency
, Small Business Lending
, Value of Large Financial Institutions

The nation’s banking sector, including the largest banks, have played an important role in supporting businesses and households during the COVID-19 pandemic, the Federal Reserve said on Friday. In its regular Supervision and Regulation report, the Federal Reserve Board also noted the continued strength of the sector and the importance of bank programs to assist borrowers during these difficult times.

“The role of banking organizations in this crisis has been different—serving as shock absorbers for the real economy,” the Federal Reserve said.

Following are three key takeaways from the Fed’s report as they relate to the eight members of the Financial Services Forum:

1. Supporting the Economy

The banking sector has been a key source of support to the economy in 2020.

“As the crisis broke, the benefits of a more resilient banking system were evident,” the Federal Reserve said. “Banks have increased lending, absorbed a surge of deposits, and worked constructively with borrowers. They have also provided access to substantial lines of credit for corporate borrowers and played a significant role in supporting small businesses via the Paycheck Protection Program (PPP).”

The eight members of the Financial Services Forum saw deposits surge 18.3 percent to $7.34 trillion in the first nine months of 2020, and have facilitated the availability of credit to businesses to help them pay their workers and continue operations.

In addition, Forum members were key participants in the Paycheck Protection Program, providing $72.4 billion in loans to more than 850,000 businesses.

2. Assisting Borrowers

Banks have also been providing significant assistance to help their customers who need assistance in these difficult times.

“Since the start of the COVID event, financial institutions—including large financial institutions—have accommodated borrowers in many ways, including payment deferrals, interest-only payment periods, fee waivers, forbearance, and temporary suspensions from credit reporting,” the Federal Reserve said. “Federal banking agencies view these accommodations as a positive response by institutions, which can help to manage or mitigate the adverse impact of the COVID event on their borrowers and communities.”

3. Safe and Strong

At the same time, the banking sector, including the nation’s largest banks, have remained safe and strong this year.

“Unlike 2008, banking organizations have been a source of strength, rather than strain, to the economy, entering the COVID event with substantial capital and liquidity and improved risk management and operational resiliency,” the Federal Reserve said.  

“Despite a great deal of turmoil in financial markets, the solvency of the banking system has not been in question,” the report said. “Banks also took a number of actions to maintain financial and operational resiliency. As a result, capital levels remain robust.”

Indeed, as of the third quarter, Financial Services Forum members maintained $832 billion in common equity tier 1 capital, up 3.8 percent from the fourth quarter of 2019 and 51 percent higher than the amount maintained 10 years ago.

Conclusion

The members of the Financial Services Forum remain well positioned to support the American economy, helping to channel resources from extraordinary central bank and fiscal measures, to serve millions of households and businesses, and to see the nation through the pandemic.

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