Despite coronavirus crisis, Fed says US banks still in good shape

The banking system is more resilient than it was during the 2008 financial crisis, the Fed said

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Although big U.S. bank's earnings plummeted in the first three months of the year as the novel coronavirus battered the economy, the Federal Reserve said in a new report on Friday that the banking system remains in good shape.

"The global banking system is more resilient and better placed to sustain financing to the real economy as a result of regulatory reforms enacted, and measures taken by the banking industry, in the aftermath of the 2008 global financial crisis," the Fed said in its semiannual Supervision and Regulation report.

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Earnings fell more than 50 percent in the first quarter of 2020, compared with the year-ago period. The U.S. central bank attributed the decline to higher loan loss provisions, as revenues were mostly flat.

Most large banks in the nation reported slightly lower common equity tier 1 ratios (CET1), a key measure of their financial strength, but still "significantly exceeded regulatory requirements."

For the 22 banks holding companies with assets worth more than $100 billion, the measure dropped to 11 percent at the end of the first quarter from 11.5 percent at the end of 2019.

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Bank deposits and loans grew at "extraordinary rates" in March, the Fed said, as investors shifted toward safe assets and pulled back from other short-investments, like prime money market funds.

The Fed also said that its discount window, which is designed to help banks weather short-term funding crunches, played a pivotal role in supporting liquidity and stability of the banking system. In mid-March, the Fed, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency said banks should rely on the discount window so they can "continue supporting households and businesses"

"By providing ready access to funding, the discount window helps DIs manage their liquidity risks efficiently and avoid actions that have negative consequences for their customers, such as withdrawing credit during times of market stress," the report said.

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