Federal Reserve Bank Chairman Jerome Powell prepares to testify before the Senate Banking, Housing, and Urban Affairs Committee at Capitol Hill on March 7, 2024 in Washington, DC. Kent Nishimura/Getty Images
Federal Reserve Chairman Jerome Powell joined the chorus of U.S. officials arguing that the rise in distressed commercial real estate loans is likely to cause some banks to fail, but does not pose a risk to the system as a whole.
The central bank chief told members of the Senate Banking Committee on Thursday that the Fed is consulting with lenders to ensure it outweighs potential losses. His comments echoed an assessment by Treasury Secretary Janet Yellen, who said last month that there would be some setbacks but that the situation would be “manageable.”
“We have identified banks that have a high concentration of commercial real estate, particularly offices, retail, and others that are heavily impacted,” he said. “I think this is an issue we'll be grappling with for many more years. Bank failures are going to happen, but big banks aren't.”
Financial regulators have said in recent months that they are closely monitoring the financial system for the effects of the downturn in the commercial real estate market.
The potential risks were highlighted by New York Community Bancorp's recent troubles, which were amplified by concerns related to a portfolio that includes billions of dollars of apartment loans in rent-regulated complexes in New York. . NYCB shares are soaring after weeks of turmoil after investors including former U.S. Treasury Secretary Steven Mnuchin put about $1 billion into the bank.
Separately on Thursday, Federal Deposit Insurance Corp. Chairman Martin Gruenberg said non-current interest rates on non-owner-occupied CRE loans rose to their highest level since 2014. He said the banking industry remained strong but “continued to deteriorate.” Certain loan portfolios require monitoring, especially office space and other types of CRE loans. ”
