(Bloomberg) – Federal Reserve Chairman Jerome Powell also argues that a 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. He joined the chorus of U.S. officials.
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 with high concentrations of commercial real estate, particularly office and retail, and other banks that have been heavily impacted,” he said. “This is an issue we will be working on for many more years.” Stated. Yes, bank failures will happen, but not the big banks. ”
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.
Read more: Top U.S. regulators focus on 'strong oversight' of bank CRE exposures
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. ”
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