Fed report shows continued dominance of large banking firms; net interest income, CRE loans of concern

More than 4,800 banks and banking firms – holding just under $43 trillion in assets – were under the supervision of the Federal Reserve as of mid-year, according to the latest supervision and regulation report issued by the central bank Wednesday.

The Fed is also supervising six insurance companies, and four commercial savings and loan holding companies, which together hold $900 billion in assets, the report states.

The Supervision and Regulation Report is published semiannually by the Fed to provide, it says, transparency about the agency’s supervisory and regulatory policies and actions. It also provides a look at current banking conditions, including the institutions overseen by the agency and size.

The Fed reported that assets held in U.S. global systemically important banks (G-SIBs) make up the biggest chunk overseen by the Fed: $14.3 trillion or one-third of the total. However, the eight G-SIBs make up only 0.17% of firms the Fed supervises.

By contrast, the Fed reported that as of mid-year it supervised 3,671 “community banking organizations” (CBOs, those with assets of less than $10 billion), for 75.8% of all firms it oversees. Those banks, however, hold only $2.9 trillion in total assets – or about 6.7% of the total.

The 677 state member banks within the CBOs, the Fed reported, make up the second largest group of organizations overseen by the Fed; they collectively hold $600 billion in assets (or 1.4% of the total).

Other key points made the report include:

  • The banking system’s financial condition has improved since the onset of the coronavirus crisis in the spring of 2020 – although some concerns persist. Among them: bank net interest margins remain low, and loan growth has been weak overall, leading to net interest income to decline.
  • Commercial real estate (CRE) loans warrant “continued monitoring.” According to the report, shutdowns and social distancing measures installed during the coronavirus crisis “strained commercial real estate properties, especially retail, office and hotel properties.” The report notes that few banks have reported problems with CRE loans (and delinquencies are low), “concerns remain about the future performance of CRE properties, particularly given uncertainties about where people will work, shop, and live.” The agency said it will closely monitor CRE loans are remain focused on hotels, offices and retail spaces loans which the agency described as “higher risk properties.”

Federal Reserve Supervision and Regulation Report, Nov. 2021

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