WASHINGTON (Reuters) – The Federal Reserve’s top regulatory official said on Friday that bank supervisors are flagging problems at banks at a higher rate in the past year, and are conducting additional exams at firms facing large unrealized losses.
Fed Vice Chair for Supervision Michael Barr also said that bank examiners are “closely focused” on how firms are managing commercial real estate risk as that sector continues to face post-pandemic pressure.
Nearly one year after Silicon Valley Bank failed due in large part to hefty unrealized losses, Barr said the Fed has been focused on flagging potential problems at banks more quickly.
“The past year has been busy for Federal Reserve supervisors,” he said in prepared remarks.
Reuters reported in December that federal bank supervisors had been stepping up their oversight of firms after several banks failed in the spring and issuing additional disciplinary actions to firms, including downgrading confidential bank health ratings.
Barr said the uptick in activity is not due to a change in policy, but rather reflects the changing economic and interest rate environment and what strains it can put on bank finances.
“We want and expect supervisors to help banks focus adequate attention on the areas that matter most for the particular bank,” he said.
In addition to extra exams for firms grappling with unrealized losses, Barr said examiners are requiring those firms to take steps to address weaknesses and bolster their capital. He added a small number of firms “with a risk profile that could result in funding pressures” are being continuously monitored.
He also added that different supervisory teams are heightening their coordination, particularly for regional firms that are nearing the $100 billion threshold, at which point they face stricter oversight. Firms that are growing rapidly are facing more frequent assessments of their health and policies, as part of an effort to ensure they are ready to meet tougher requirements.
“The goal is that the transition to heightened supervision for fast-growing banks is more of a gradual slope and not a cliff,” he said.
Those comments come as New York Community Bancorp (NYSE:NYCB) saw its stock fall sharply in value after it posted an unexpected quarterly loss in January. Bank executives said at the time part of the strain was heightened requirements they faced after recently exceeding $100 billion in assets.
Barr said the Fed is still weighing whether it should impose temporary higher capital and liquidity requirements on firms facing risk management issues.
Source: Economy - investing.com
