Current Banking Risks

Current risks facing the banking industry are defined as key issues in the present environment that could impact a bank’s ability to operate its business model. These risks are considered the most significant exposures based on a forward-looking evaluation of the inherent risks and effectiveness of risk management activities.

The risks highlighted in this report are identified by their perceived impact, as well as the potential for data gaps that may present a supervisory challenge.

While vacancies are improving, rent growth continues to lag, and ongoing economic uncertainty may keep certain sectors of the market in a risk-averse mode. High interest rates continue to affect refinancing, and capitalization rates are not declining. There is some dispersion in how much different banks with high concentration in commercial real estate are provisioning for potential credit losses, but noncurrent loan rates remain historically low.

Uncertainty about inflation and labor market fragility have created an unclear interest rate path, but firms have reduced their interest rate sensitivity following the regional banking turmoil in 2023. Unrealized losses in bank portfolios persist but are declining.

Cybersecurity risk remains elevated in the Eleventh District due to geopolitical factors and the use of new technologies by banks that introduce cybersecurity risks that banks must manage. Successful cyber attacks could create a range of outcomes involving financial losses or potential liquidity issues at an affected firm.