READOUT: Financial Stability Oversight Council Meeting on June 16, 2023

The U.S. Department of the Treasury (USDT) has published a press statement to inform of a recent meeting of the Financial Stability Oversight Council (FSOC) on June 16, 2023. Specifically, the following key issues were briefly discussed and / or noted in view of the current economic and macroprudential environment of financial institutions:
1. Potential risks for institutions in connection with the commercial real estate (CRE) market: The exposure to CRE loans at depository institutions has been increasing, particularly at smaller institutions. Although delinquency rates on loans are still low, there has been a noticeable uptake in vacancy rates, specifically in the office sector. As a result, regulatory bodies are actively prioritizing risk management measures and closely scrutinizing the extent of CRE loan exposure within the institutions they oversee.
2. Stability in the banking sector: According to the assessment of several FSOC members, the sector remains resilient and robust thanks to the regulatory changes that were made following the global financial crisis in 2008/2009. Being well capitalized with „significant liquidity“, financial institutions should be able to withstand any potential headwinds from the current environment. However, the regulators also note that they need to continue to closely monitor the current situation and sector-wide vulnerabilities.
3. LIBOR cessation: The termination of the remaining LIBOR tenors is just around the corner with June 30, 2023 being the last date of publication. The regulators note that institutions and other market participants had plenty of time to prepare for the cessation and that they expect „firms to be operationally prepared and to communicate with customers and counterparties about the change to avoid market disruptions.
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There were also some other issues discussed at the meeting, including ongoing consultations and information sharing among the FSOC members. For more information on those issues, please refer to the original statement issued by the U.S. Department of the Treasury.