NEW YORK, NY – The Federal Reserve’s top supervisory official, Michael Barr, announced on Friday that regulators are increasing their scrutiny of banks, conducting additional exams, and flagging problems at a higher rate over the past year. This heightened oversight comes in response to concerns over bank failures, inflation, and credit card delinquencies.
Barr stated that bank examiners are particularly focused on how firms are managing commercial real estate risk as this sector faces post-pandemic pressure. In the wake of the failure of Silicon Valley Bank and other large regional banks, such as First Republic Bank and Signature Bank, the Fed has prioritized the quick identification of bank issues.
According to Barr, the uptick in supervisory activity is not due to a policy change but is reflective of the changing economic and interest rate environment. As a result, bank examiners are requiring firms to take steps to address weaknesses and bolster their capital.
In addition to addressing unrealized losses, Barr noted that a small number of firms with a risk profile that could result in funding pressures are being continuously monitored. This heightened coordination is particularly focused on regional banks nearing the $100 billion threshold that triggers stricter oversight, as well as rapidly growing firms facing more frequent assessments of their health and policies.
Furthermore, Barr mentioned that the Fed is still considering whether it should impose temporary higher capital and liquidity requirements on banks facing risk management issues. This announcement comes after New York Community Bank saw a steep decline in its stock price following an unexpected quarterly loss due to tougher regulatory requirements.
Overall, Barr’s remarks shed light on the increased vigilance and supervision being undertaken by bank regulators in response to the economic challenges facing financial institutions. As the Fed continues to monitor potential weaknesses in banks’ balance sheets, the implications of these regulatory actions will undoubtedly have a significant impact on the banking sector and the broader economy.