Kudlow panelists Kevin O'Leary, Kevin Hassett and John Carney discuss inflation, bank failures and credit card defaults.
The Federal Reserve's top regulator said Friday that banking regulators have been reporting problems at banks more frequently over the past year and conducting additional investigations into companies facing large unrealized losses.
Federal Reserve Vice Chairman for Supervision Michael Barr added that bank examiners are “very focused” on how companies manage commercial real estate risk as that sector faces pressure in the wake of the pandemic.
“The past year has been a busy one for Federal Reserve regulators,” Barr said in prepared remarks nearly a year after Silicon Valley Bank's failure, which was due in part to large unrealized losses.
After the failure of SVB and other large regional banks, including First Republic Bank and Signature Bank, the Fed has focused on quickly identifying banking problems.
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Fed Vice Chairman Michael Barr said regulators are focused on monitoring potential problems facing U.S. banks. (Photographer: Graeme Sloan/Bloomberg via Getty Images / Getty Images)
Portal reported in December that federal banking regulators had stepped up their oversight of companies and imposed disciplinary measures on companies – including downgrading confidential bank health ratings – following last spring's bank failures.
Barr said the increase in activity was not due to a change in policy but reflected the changing economic and interest rate environment and the strain that could be on banks' balance sheets.
“We want and expect regulators to help banks focus appropriately on the areas that are most important to each bank,” he said.
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The Federal Reserve is increasing its surveillance of banks that have potential weaknesses on their balance sheets. (Photographer: Nathan Howard/Bloomberg / Getty Images)
In addition to requiring additional audits for companies struggling with unrealized losses, Barr said auditors are requiring companies to take steps to address vulnerabilities and strengthen their capital. He added that a small number of companies “with a risk profile that could lead to funding pressures” will be continually monitored.
Barr explained that various supervisory teams are increasing their coordination, particularly for regional banks that are approaching the $100 billion threshold that triggers stricter supervision. Fast-growing companies are facing more frequent health and policy assessments to ensure they are equipped to meet more stringent requirements.
“The goal is for the transition to increased supervision for fast-growing banks to be a gradual increase rather than a cliff,” Barr said.
New York Community Bank shares took a hit following disappointing quarterly results and ongoing concerns about exposure to the commercial real estate sector. (Photographer: Bing Guan/Bloomberg via Getty Images / Getty Images)
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His comments came after New York Community Bank saw its stock price fall sharply after reporting an unexpected quarterly loss in January. NYCB executives said some of the strain was caused by stricter regulatory requirements that came into effect after the bank recently crossed the $100 billion threshold.
| ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| NYCB | NEW YORK COMMUNITY BANCORP INC. | 4.90 | -0.04 | -0.81% |
Barr said the Fed is still considering whether to temporarily impose higher capital and liquidity requirements on banks facing risk management problems.
Portal contributed to this report.