Those firms, as well as First Republic Bank, which was closed by regulators earlier this month and sold to JP Morgan Chase, also were grappling with large amounts of unrealized losses spurred by rapidly rising interest rates. Depositors fled SVB within days after it appeared the firm was in trouble, precipitating its abrupt closure. The Fed noted in its report on Monday that more than 45% of bank assets reprice or mature within a year, suggesting there is not heavy exposure to less valuable securities for long periods of time. But while the amount of uninsured deposits at banks is declining, they still remain above historical averages after an influx of deposits spurred by the COVID-19 pandemic. In aggregate, it said banks remain well-capitalized.
DEBT LIMIT CONCERNS The Fed released the report shortly after a separate central bank survey found banks were tightening credit standards amid weaker loan demand.
Beyond banks, the Fed said pressures on various market sectors remained within historical norms. However, it noted that valuations on commercial real estate remain high, which suggests there could be a "sizable" correction in property values should telework trends remain strong. The Fed found that banks hold about 60% of commercial real estate loans, with two-thirds of those at smaller lenders with less than $100 billion in assets. The Fed's report also found that nearly half of its respondents identified the U.S. debt limit as a salient risk, after not appearing as a top concern in the previous report in November. U.S. Treasury Secretary Janet Yellen said the limit could be reached in June, but Democrats and Republicans are still sparring over what conditions, if any, should be attached to an increase.
Banking sector stresses were identified as a risk by more than half of respondents, up from 12% in the November report. Other issues identified as top potential risks by respondents included persistently high inflation and monetary tightening, U.S.-China tensions, and the Russia-Ukraine war. (Reporting by Pete Schroeder; Editing by Paul Simao)
