The banking system remained strong overall, with robust capital and liquidity and improved asset quality in the second half of 2021, according to the Federal Reserve’s latest supervision and regulation report released in early May.
The Fed said that risk monitoring will continue for potential effects of the pandemic and new geopolitical risks, including Russia’s invasion of Ukraine.
The banking industry ended 2021 with strong capital positions, the report noted. Since the pandemic began, the industry has added nearly $230 billion in additional common equity tier 1 capital, providing support for lending and a buffer against losses. Strong deposit growth has spurred the increase in liquid assets and allowed banks to reduce their reliance on more volatile forms of funding. Bank profitability declined in the last three quarters of 2021 but remains sound and comparable with pre-pandemic levels, the report said. The decline was due to reduced benefits from negative provision expense and lower trading income at large banks.