July 13, 2023

View the latest State of the District

By Joe Davidson, Senior Vice President
Supervision and Regulation
Federal Reserve Bank of Atlanta

Dear colleagues,
The banking system remains sound and holds high levels of capital and liquidity. However, uncertain economic conditions and the interest rate environment during the past year have contributed to increases in firms’ credit, liquidity, and interest rate risks. The recent failures of three large US banks demonstrated the risks of concentrated funding sources and the critical need for robust management of interest rate risks. Failure of any bank is a reason for reflection by the supervisors involved and for our organization.

Since the Barr Report was released in April, we have been focusing on the speed, force, and agility of our supervision. In evaluating interest rate risk (IRR) during exams, examiners will evaluate a bank’s ability to fully identify its current IRR exposure and yield curve risks, risks arising from alternative future interest rate scenarios, and whether the bank has effective IRR measurement models, metrics, and limits. This evaluation includes evaluating the risks associated with declines in the fair value of investment securities that can result from changing interest rates. Working hand in hand with us, we need banks to continuously monitor this risk, which includes updating key assumptions used in IRR models, such as those estimating deposit flows. And importantly, we assure banks that these factors influence our take on the sufficiency of capital and liquidity positions as well as the adequacy of diversified contingency funding plans.

One of the wonderful things about people in our organization is their strong commitment to our mission. We take pride in our work, we are committed to executing it well, and we work diligently to do so. We understand the importance of the work we do and how it affects our economy and the financial well-being of people and communities that depend on the banking system.

As both consumer needs and their preferences in accessing financial services change, so too must the banking industry. Banks of all sizes see new opportunities to develop enhanced and customized products for their customers, introduce faster payments, and improve efficiency. To this point, let me remind you that the Federal Reserve is all set to launch the FedNow service this month. FedNow is a new instant payment infrastructure developed by the Federal Reserve that allows financial institutions of every size across the United States to provide safe and efficient instant payments in real time, around the clock, every day of the year. Additional details on the service’s launch preparations can be found at FedNow Service.

State of the District
Our quarterly State of the District section assesses Sixth District banks’ earnings and financial positions, among other snapshots of their condition, as of March 31, 2023.

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Resources and events

  • The Atlanta Fed’s annual Financial Markets Conference, with a theme of "Old Challenges in New Clothes," took place from May 14–17, 2023. The event convened leading experts to discuss emerging financial market issues and their monetary policy implications.
  • Nonbank financial institutions have assumed a larger role in the provision of some key services, taking substantial market share from banks. Shifting market shares are partly the result of a combination of technological developments that facilitate participation of nonbank institutions and regulatory and governmental actions that inhibit banks' ability to compete. Watch a discussion held on May 16, 2023, with keynote speakers Atlanta Fed president Raphael Bostic and Chicago Fed president Austan Goolsbee.
  • Save the date for the 2023 Community Banking Research Conference, which will be held in person at the Federal Reserve Bank of St. Louis on October 4–5, 2023. The conference committee is interested in research that explores all topics related to community banking, and it especially welcomes empirical and policy-oriented papers. Each paper selected for the conference will be considered for the John W. Ryan Award, which recognizes the paper making the most significant contribution to banking research. The conference committee invites papers or detailed abstracts that explore all aspects of community banking, and submissions can be made here.
  • As financial institutions prepare for instant, real-time payment offerings, the key risk management components they should consider are liquidity risk management, third-party risk management, and fraud and compliance risk management. Read more about how to prepare for these risks here.
  • On Wednesday, July 26, 2023, at 1 p.m. (ET), staff from the regulatory authorities will conduct a webinar titled "Ask the Regulators: Final Supervisory Guidance on Third-party Risk Management," for their supervised institutions on the recently issued final guidance on third-party risk management. During the webinar, staff of the agencies will provide an overview of the final guidance, highlighting key topics and specific areas for consideration. Staff will also discuss the guidance’s description of supervisory processes with respect to banks’ third-party risk management practices. Registration is now open here.
  • How can the Discount Window work for you? Learn about its benefits and eligibility at frbdiscountwindow.org as liquidity becomes a concern for financial institutions.

Supervisory and regulatory updates

Here, I want to share some regulatory guidance and webinars that provide relevant information on the banking sector this quarter.

We hope you will visit our website at atlantafed.org and explore the many ways we operate in the Sixth District to ensure banking stability and support our communities. We are always available to discuss any concerns that you may have. We appreciate your efforts in working with your customers and providing broader support to the communities you serve. Connect with us by subscribing to our mailing lists and follow us on social media.

Yours sincerely,

photo of Joe Davidson
Joe Davidson

Senior Vice President, Supervision and Regulation
The Federal Reserve Bank of Atlanta