A Letter From Lisa: 2024 Perspectives
I'm excited to kick off our 2024 Supervision News Flash series by taking this opportunity to share my perspectives around the risks we see as most concerning within the Fifth Federal Reserve District. We have a unique set of institutions within our supervisory portfolio here at the Richmond Fed. As a reminder, our Supervision, Regulation and Credit staff examines banks across the entire range of asset size and complexity — from systemically important institutions to those focused on serving their local communities. This provides us with an opportunity to see risks bankers face across a wide spectrum.
I’m sure it’s not surprising to hear that examiners continue to monitor banks' preparedness for managing liquidity, interest rate and credit risks. There has been an intense focus on the commercial real estate (CRE) market, including office and multifamily, and we continue to monitor these segments closely. CRE is something we pay close attention to within our District given the higher levels of concentration Fifth District banks have relative to national estimates. I encourage you to review two News Flash articles we published in March and August of last year for more detailed information and references. Liquidity levels continue to decline from their pandemic peak yet remain above pre-pandemic levels. Persistent higher deposit costs and the competitive environment for deposit growth continue have led banks to rely more heavily on noncore funding compared to prior years. This is something we’ll continue to watch through dynamic banking and economic conditions expected this year.
Related to liquidity, I don’t feel like I can emphasize enough the messages in the supervisory guidance that was released in July of last year supporting liquidity and contingency planning. This updated guidance reinforces that the discount window is an important tool that depository institutions can use to manage liquidity risk and bolster resiliency. If your bank is including the discount window as part of its contingency funding plans, I encourage you to make sure that you’re operationally prepared and understand the requirements to use it. Also, you should regularly test your preparedness to use the discount window. If you’re not sure whether your bank has an operational account and/or have questions, we’d welcome conversations with your bank.
Cybersecurity and third-party risk also remain risks that we monitor across bank size and complexity. We see ransomware as a constant and expensive threat to financial institutions and continue to work with our bankers to ensure their information technology systems are secure and that risk management is commensurate with the risk profile. If you didn’t have the opportunity to attend the “Ask the Fed” session on Valentine’s Day, I encourage you to check out the archives and listen. This session helps bankers understand the benefits and services that are offered by the Cybersecurity and Infrastructure Security Agency (CISA). There are many opportunities for bankers to leverage this agency, and we encourage you to talk to your Central Point of Contact if you’d like to learn more.
One of the Fed’s publications that I find very useful is the biannual Supervision and Regulation Report published by the Board of Governors. This report is published in April and November of each year and provides information about banking conditions, risks that banking institutions face and supervisory developments. National trends that are discussed in the report are reflective of the concerns and issues we’re monitoring within our District. I’ve drawn on the most recent report plus other publicly reported regulatory data for this summary.
In closing, I look forward to hearing from you and learning how you continue to serve your communities while providing banking services in a challenging and always changing environment.
