"A financial system is considered stable when banks, other lenders, and financial markets are able to provide households, communities, and businesses with the financing they need to invest, grow, and participate in a well-functioning economy - and can do so even when hit by adverse events, or 'shocks,'" the report said on Monday. "Frequently cited topics in this survey included persistent inflation and tighter monetary policy, banking-sector stress, commercial and residential real estate and geopolitical tensions."
The report was previously published by the Fed in November before the implosion about two months ago of several prominent mid-sized banks, including Silicon Valley Bank, which was an important funding source for technology companies.
In a review of the banking crisis published last month, the Fed took the rare step of admitting much blame for being the catalyst for the problem. The central bank’s supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity, the review said. When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough, it added.
In the latest Financial Stability Report, which surveyed market experts, economists, academics and others, the Fed said it found confidence in the US banking system shaken but not shattered.
"Overall, the banking sector remained resilient, with substantial loss-absorbing capacity," the report said. "Policy interventions by the Federal Reserve and other agencies helped mitigate these strains and limit the potential for further stress."
Still, the central bank identified several sectors of the economy as having elevated potential for trouble. These include money market funds, stablecoins and hedge funds, particularly of the larger kind. Leverage is also generally low across household and business debt, including commercial real estate, the Fed said.
In a separate survey of senior loan officers at US banks, the Fed said it saw tighter lending standards in the wake of the banking crisis, which could lay the path for lower credit demand.
Lending officers at banks voiced concerns about deposit outflows, a weakening economy and reduced liquidity. Commercial and industrial loans, along with lending to commercial real estate, were likely points of significant stress, it added.