Join Our Telegram channel to stay up to date on breaking news coverage
Jerome Powell, chairman of the Federal Reserve, has highlighted a concerning revelation: the US regional banks are exposed to $2.9 trillion in troubled office loans. The current economic landscape puts these banks at risk and presents them with challenges.
Federal Reserve Monitors Regional Banks’ Real Estate Risks
Federal Reserve Chair Jay Powell says his agency closely monitors financial institutions with significant exposure to commercial real estate. Powell raised concerns about commercial real estate loans to an already struggling banking industry at the ECB Forum on Central Banking.
Bankers should pay attention to loan default risks and increase their capital reserves to protect against losses. As the economy changes, banks should also adjust their lending policies.
Especially because regional banks in the United States are surprisingly exposed to commercial real estate, Powell said that the Federal Reserve is keeping a close eye on it.
It’s something that we, of course, are watching carefully. The way it lays out is the large banks don’t have large concentrations of commercial real estate. That’s a good place to start.
A surprisingly large part of exposure to commercial real estate is in the banks that are under $100 billion. There the worry is more banks that have a high concentration, and they are relatively few.
So it’s something that we’re carefully monitoring. Bank supervision has a playbook for this, so supervisors are talking to banks about their concentration in real estate and what can they do and how do they manage themselves out of this. It’s something that we’re well aware of. It’s not a surprise. We’re focusing on it.
US Commercial Real Estate Loans Surge to $2.9 Trillion, 576 Banks at Risk
As of May, commercial real estate loans totaled $2.9 trillion, according to the Federal Reserve. Moreover, Goldman Sachs found that small and mid-sized banks hold about 67.2% of outstanding commercial real estate loans.
In a report from S&P Global Market Intelligence, released last month, 576 banks were found to be overexposed to commercial real estate loans.
Especially since it comes at a time when the sector is under pressure, many people work remotely, partially, or full-time, which has affected the demand for office space and commercial properties, making them vulnerable.
Some companies have downsized their office space or opted for short-term leases. In addition, coworking spaces are becoming more popular since they’re cheaper and more flexible.
Related
Join Our Telegram channel to stay up to date on breaking news coverage
