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Carl White

Fed Touts Strong Banking System in Supervision Report

U.S. banking conditions remained strong overall in the second half of 2021, with robust capital and liquidity, in addition to improved asset quality. That’s the conclusion of the Federal Reserve Board of Governors, which recently released its latest Supervision and Regulation Report (PDF). The semiannual report covers banking system conditions, as well as regulatory and supervisory developments for the institutions under the Fed’s supervisory umbrella.

6/27/2022 Read more about Fed Touts Strong Banking System in Supervision Report

The Federal Reserve seeks input from a variety of stakeholders to assist it in making decisions about monetary policy, banking supervision and other responsibilities. Earlier this month, we took a look at the contributions of Reserve bank boards of directors and detailed how they are selected and what they do and don’t do as board members.

Like most corporations, each of the nation’s 12 Federal Reserve banks and their branch offices is governed by a board of directors. While many of their duties are similar to those of corporate boards, these boards do have some unique responsibilities as well as restrictions on activities and oversight.

This is the second part of an article that describes how banks have accommodated the very large involuntary increase in their Fed reserve balances that corresponds to Fed asset purchases. In this post, I show that banks increased their deposit funding substantially, allowing them to reduce nondeposit borrowings. “Core” deposits—deposits excluding large time deposits—also increased significantly, offset, in part, by a decline in large time deposits, which are deposits above $100,000. Concurrently, equity financing declined as a share of assets. I conclude that Fed asset purchases are not responsible directly for the surge in deposits and reduction in other liabilities and equities. Rather, both Fed and bank portfolio shifts are responses to heightened economic stress and uncertainty.

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Take Five is a popular video series featuring St. Louis Fed economist Dr. Bill Emmons. In each video, Emmons provides a quick, concise synopsis of the most recent meeting of the Federal Open Market Committee (FOMC).