WASHINGTON (AFP) — A top Federal Reserve official warned Tuesday that US banks will "likely" have to endure further write-downs from bad loans related to the housing slump and a widespread credit squeeze.
Donald Kohn, the vice chairman of the US central bank, said in remarks prepared for delivery to a congressional panel that the financial sector was facing ongoing difficulties.
"Looking ahead, bank holding companies will continue to face challenging market conditions and persistent pressure on earnings. More asset write-downs are likely as the market continues to adjust risk premiums and valuations change," the Fed's vice chairman said.
Kohn, a voting member of the Fed's monetary policy committee, said "it will take some time" for major banks to work through the housing strains buffeting the industry, and for financial markets to recover from a recent downturn.
"The US banking system is facing some challenges, but remains in sound overall condition, having entered the period of recent financial turmoil with solid capital and strong earnings," he said.
Kohn told the Senate Banking Committee that Fed officials had ratcheted up their oversight of the banking system and were putting risk management practices and bank governance policies under the microscope.
Major banks such as Citigroup and Merrill Lynch have divulged multibillion-dollars losses in recent months which they have largely blamed on ailing mortgage investments.
Kohn said banks were taking steps to bolster their finances and that the Fed was working to ensure that the "soundness" of the banking system is maintained.
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