2023 has proven to be a challenging year for financial institutions. Since early 2022, the Federal Reserve contracted the money supply through open market activities, driving rates up, and the value of long-term bonds held in bank portfolios down…Looking forward, banks can expect increased discussion and scrutiny from examiners regarding their asset liability management program and the monitoring of deposit behavior, model assumptions, cash flow and contingent funding sources.

A shrinking money supply has significant implications for bank liquidity and the overall financial system, particularly when the moves are substantial. As the money supply contracts, there's less money available in the economy, which affects banks' ability to maintain sufficient liquidity to meet their obligations.

The Princeton economist and ex-Fed official says the central bank can still tame inflation and avoid recession, but it’s going to be tough.

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The Fed has raised its interest rate 11 times since March 2022, boosting it from near-zero to a range of 5.25% to 5.5% in an effort to cool down the scorching inflation that set in as the economy recovered from the pandemic...At some point, the Fed will shift out of inflation-fighting mode and begin to lower interest rates again, though that day could be a long way off.

Global government bond yields extended their climb — with the US 30-year reaching the highest point since 2011 and other benchmarks returning to 2008 levels — as resilient economic data challenges the view that central bank rates are peaking.

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One of the most important issues that this year’s events have revealed is the critical need for institutions to adopt more prudent risk management practices...As financial services institutions navigate the shifts and shocks that have defined this challenging period, they must focus on building organizational resilience in these key areas.

Despite differing methodologies and assumptions, the existing body of work on household savings following the pandemic recession firmly points to the rapid accumulation and drawdown of excess savings in the United States...estimates suggest that a relatively small amount—around $190 billion—remains in the overall economy, and we expect the aggregate stock of excess savings will likely be depleted during the third quarter of 2023—that is, the current quarter—for which initial data will be released later.

The existing rules limit risk when a brokerage fails, Finra said. But they may not go far enough to keep it upright during times of market stress...The concept proposal “has been informed by best practices” that Finra said it has observed among its member firms.