The banking sector is resilient – ample liquidity means there is no risk of collapse

The U.S. banking sector overall appears well-positioned to weather recent industry turmoil, but the experience could still weigh on credit conditions in the future, the Federal Reserve said on Monday. In its semi-annual report on financial stability, the U.S. central bank said overall funding risks for banks remained low and firms still have ample liquidity. Furthermore, additional policy efforts by U.S. bank regulators following the abrupt collapses of Silicon Valley Bank and Signature Bank in March should continue to backstop the system if further stresses arise, the Fed said. "The Federal Reserve is prepared to address any liquidity pressures that may arise and is committed to ensuring that the U.S. banking system continues to perform its vital roles," the Fed said. While the central bank noted there were spillover concerns following the failures of Santa Clara, California-based SVB and New York-based Signature, it maintained that the issues that sank those regional banks do not appear broadly across the banking sector, calling them "outliers" in terms of heavy reliance on uninsured deposits. Those firms, as well as First Republic Bank, which was closed by regulators earlier this month and sold to JP Morgan Chase, also were grappling with large amounts of unrealized losses spurred by rapidly rising interest rates. Depositors fled SVB within days after it appeared the firm was in trouble, precipitating its abrupt closure. The Fed noted in its report on Monday that more than 45% of bank assets reprice or mature within a year, suggesting there is not heavy exposure to less valuable securities for long periods of time. But while the amount of uninsured deposits at banks is declining, they still remain above historical averages after an influx of deposits spurred by the COVID-19 pandemic. In aggregate, it said banks remain well-capitalized.