Fed Chairman Jerome Powell stated that they are closely following the developments in the banking sector.
Fed Chairman Jerome Powell said on Thursday that the Fed continues to monitor the situation in the banking sector “very carefully” amid potential vulnerabilities such as the commercial real estate sector.
Speaking at an event organized by the Spanish Central Bank in Madrid, Powell pointed out that there is still time to say whether the volatile situation in the sector is over.
Powell stated that while the sector still has some funding gaps, as seen in the banking crisis in March, when deposit outflows caused Silicon Valley Bank (SVB) and two other US banks to fail, stability was achieved in deposit flows.
Powell said that in general, banks’ capital is “strong and liquidity very very high,” as evidenced by the Fed’s stress test on Wednesday.
Regarding the commercial real estate sector, Powell pointed out the effects of work from home practices in the office segment, but said that the risks were not concentrated in the big banks.
The Fed Chairman also said that US regulators have not yet addressed issues with money market funds.
“There were some large inflows into money market funds during the March crisis. These have stalled. During any tightening cycle, people tend to move their money from bank deposits to money market funds over time due to higher yields. This causes banks to tighten their lending conditions,” Powell said. Of course, it is a desired result,” he said.