Bernanke Discusses Banking Progress, Challenges
Banking conditions have improved significantly since the financial crisis, but banks still face a number of challenges, said Federal Reserve Chairman Ben Bernanke in a May 10 speech.
In remarks delivered via satellite to the Chicago Fed's annual banking conference, the chairman highlighted the "considerable progress" banks have made in strengthening their balance sheets and building capital. Results from the latest supervisory stress tests—formally called the Comprehensive Capital Analysis and Review (CCAR)—highlight the extent to which banks have shored up their capital levels. The 19 banks that participated in the stress-testing process have increased their Tier 1 capital by more than $300 billion since 2009 and "would likely have sufficient capital to withstand a period of intense economic and financial stress," Bernanke said.
New rules costly, yet critical
Credit conditions improve, but mortgage lending still tight
Citing the results of a special question in the most recent survey, the chairman noted that respondents indicated that they were currently less likely to originate mortgages eligible for purchase by the government-sponsored enterprises (GSEs) than they were in 2006, even to borrowers with good credit histories and a 20 percent down payment. Tight mortgage lending conditions are unlikely to be resolved overnight, Bernanke noted, pointing to such factors as the sluggish recovery in the housing market and economy, uncertainty about the future role of the GSEs, and lenders' cautious attitudes.
However, as the recovery gains steam, "increasing both demand for credit and the creditworthiness of potential borrowers, a financially stronger banking system will be well positioned to expand its lending," he said. These factors, in turn, will "help create a more robust economy."
May 24, 2012