Written by David Lowder
WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said on Thursday she expects the downturn in the commercial real estate market to further increase bank stress and financial losses, but said it does not pose a systemic risk to the banking system. I showed my thoughts.
Yellen said at a Senate Banking Committee hearing that banking regulators are working with banks to address risks posed by rising post-pandemic vacancy rates and rising loan refinance rates in many office buildings in major cities. He said he is doing so.
“Valuations are down, so obviously there will be stress and losses associated with this,” Yellen said.
“I hope and believe that this does not end up being a systemic risk to the banking system. The exposure of large banks is quite low, but there may be smaller banks that will be stressed by these developments.”
He cited the sharp stock market decline experienced by New York Community Bancorp, which last week reported an unexpected loss in the fourth quarter after building up larger reserves for potential commercial real estate loan defaults. was not mentioned directly.
The incident comes as investors worry that weak office demand could trigger a wave of defaults and put pressure on banks that want to avoid selling commercial real estate loans at deep discounts. Stock prices of regional banks in the United States have also been hit.
Yellen's testimony was the second time this week she attempted to downplay commercial real estate risks, telling the House Financial Services Committee on Tuesday that she was concerned about commercial real estate stress but said the situation was manageable. Stated.
Yellen told senators that the Financial Stability Oversight Council, a group of regulators, has discussed commercial real estate risks at every meeting for the past year. “We are looking at it in a comprehensive manner and working with banking regulators to understand the exposure.”
Yellen also said at the hearing that she is concerned about the lack of affordable insurance in some U.S. markets due to increased risks from climate change, such as storms, floods and wildfires, and that this could lead to financial It added that this could create a “feedback loop” that threatens the stability of the world.
“As these climate risks intensify, being uninsured or underinsured is not only hurting household well-being in terms of cost of living, but many banks are reducing their lending and financial exposure. “It also poses a risk to financial stability because of the risks that could arise in the event of an uninsured loss,” Yellen said.
He said the Treasury Department's Office of Federal Insurance is working on a study to collect ZIP code-level data on trends and factors that affect insurance availability and pricing.
(Reporting by David Lawder; Editing by Bill Berkrot)
