According to Federal Reserve Governor Lisa Cook, U.S. households, banks, and firms are currently in a stable financial position. They have the necessary resources to handle debt payments and have built up sufficient buffers to withstand any potential disruptions.

According to Cook’s assessment of financial stability, even though commercial real estate experienced a decline in value due to the shift towards home-based offices during the pandemic, it still presents some risks to smaller banks that have significant concentrations of related loans. However, these risks are considered to be sizable yet manageable.

In light of the recent release of the Fed’s most recent biannual financial stability report, Cook, the chair of the Fed’s committee on financial stability, shared some insightful remarks.

Cook highlighted areas of interest that she is monitoring, specifically the increase in delinquency rates for consumer auto and credit card payments. She is keen to determine whether this rise is simply a return to normal levels after a period of low delinquency, or if it indicates significant financial strain among certain households.

The Federal supervisors, she mentioned, were also in close collaboration with banks that experienced losses in the book value of certain assets due to the increase in interest rates by the Fed, or those that hold significant amounts of loans backed by commercial real estate that may have depreciated.

Although there are concerns about declining CRE valuations and the potential impact on the U.S. financial system, Cook noted that the shift to remote work has allowed companies to adapt. While some lenders may need to make adjustments to downtown office properties as CRE loans mature, other types of office properties have not experienced the same decline in prices.
She made no mention of the economy or monetary policy in her prepared remarks.