Local time on Monday (May 8), the Federal Reserve released the "Financial Stability Report", the report said that banks' concerns about slowing economic growth may lead them to reduce lending, thereby accelerating the economic downturn.
This is the Fed's first financial stability report since the banking crisis erupted, the last time it was released in November.
The report said the banking sector remains generally resilient and has a strong capacity to absorb losses, with policy intervention by the Federal Reserve and other agencies helping to ease the strain on banks and limit the likelihood of further deterioration.
"Despite the stress in the banking sector in March, high levels of capital and modest interest rate exposure mean that the vast majority of banks are able to withstand potential stress from higher interest rates," the Fed said.
However, the Federal Reserve also warned in the report: "Concerns about the economic outlook, credit quality, and funding liquidity may cause banks and other financial institutions to further reduce the supply of credit to financial institutions. A sharp contraction in the supply of credit would push up financing costs for businesses and households, potentially slowing economic activity. "
The report pointed out that bank financing is generally relatively stable, but there are substantial liquidity risks in other areas of the financial market.
Overall, U.S. domestic banks have ample liquidity and limited reliance on short-term wholesale funding, the report said. Structural vulnerabilities in short-term funding markets remain. Prime and tax-exempt money market funds, as well as other cash investment vehicles and stablecoins, remain vulnerable to runs.
Focus on commercial real estate loans
The Fed noted in the report that increased telecommuting could reduce demand for office space and lead to a decline in the value of urban retail properties. Adjustments in real estate values can be substantial and therefore can result in credit losses for holders of commercial real estate debt.
In response to concerns about commercial real estate debt, the Fed said it had increased its monitoring of commercial real estate loan performance and expanded its review process for banks with high commercial real estate concentration risks.
For the residential real estate sector, the Fed said in the report that despite subdued activity and falling prices in recent months, valuations remain near record highs.
In terms of business and household borrowing, the Federal Reserve said in a report that the economic downturn may weaken the ability of enterprises to service their debts, and the level of household debt is moderate.
