Banking system conditions have improved in 2021 as banks remain strong
Financial conditions in the banking system remained strong and improved in the first half of 2021, despite lingering concerns, the Federal Reserve (Fed) found in its latest supervision and regulation report.
According to the Fed, as the economic recovery from Covid-19 continued in the first half of the year, banks saw early signs of loan growth, along with a decline in delinquencies and forbearances, and an increase profitability.
Average net interest margins remained low across the sector, due to still low interest rates, although the Fed notes that banks also recorded growth in non-interest income, which helped compensate for the lack of growth of the NIM.
At the same time, loan demand remained weak overall and, combined with lagging NIMs, led to lower net interest income for banks.
The Fed has designated cybersecurity and operational resilience as a monitoring priority for large institutions in particular. He said that “cyberattacks have increased significantly since the start of the COVID event”, especially those that use ransomware.
The report highlighted the importance of “cyber hygiene” including IT asset management, vulnerability management and patch management, and proactive identification and mitigation of cyber threats.
The Fed also said supervisory activities are beginning to return to pre-pandemic approaches as several pandemic-era flexibilities have been allowed to expire and normal banking reviews resume.
Going forward, the Fed intends to adopt a “hybrid” approach to reviews, which will involve both on-site and off-site reviewers.
Earlier this week, President Joe Biden renominated Federal Reserve Chairman Jerome Powell for a second term as Federal Reserve Chairman.