âAs a result, the noncurrent rate for nonowner occupied CRE loans is now at its highest level since first quarter of 2014, driven by portfolios at the largest banks,â the FDIC says.
Federal Reserve Chair Jerome Powell conceded earlier this month that he and the Feds, along with the the Federal Deposit Insurance Corporation (FDIC), are aware of and monitoring a number of banks that are likely to fail sometime in the future, primarily due to their overexposure to commercial real estate (CRE) and losses on their balance sheet because of higher interest rates.
In February Powell sat down for an interview with CBSâ 60 Minutes and explained the prospect of bank failures due to CRE exposure, but emphasized it was only the medium and small banks.
Scott Pelley: The value of commercial office buildings all across the country is dropping as people work from home. Those buildings support the balance sheets of banks all across the country. What is the likelihood of another real estate-led banking crisis?
Powell: I donât think thatâs likely. So, whatâs happening is, as you point out, we have work-from-home, and you have weakness in office real estate, and also retail, downtown retail. You have some of that. And there will be losses in that. We looked at the larger banksâ balance sheets, and it appears to be a manageable problem. Thereâs some smaller and regional banks that have concentrated exposures in these areas that are challenged. And, you know weâre working with them.
This is something weâve been aware of for, you know, a long time, and weâre working with them to make sure that they have the resources and a plan to work their way through the expected losses. There will be expected losses. It feels like a problem weâll be working on for years. Itâs a sizable problem. I donât think â it doesnât appear to have the makings of the kind of crisis things that weâve seen sometimes in the past, for example, with the global financial crisis.
Powell explained â though part of his statement was not included in the televised interview.
Moreover, during a Senate Banking Committee hearing Powell earlier this month, acknowledged this but said it is medium and small regional banks that are affected.
There will be bank failures, but this is not the big banks. If you look at the very big banks itâs not a first order issue for any of the of the very large banks. Itâs more, you know, smaller and medium-sized banks that have these issues.
Weâre working with them, weâre getting through it â I think itâs manageable, is the word I would use, but itâs you know itâs a very active thing for us and the other regulators, and it will be for some time.
Powell said at the time
But federal data unfortunately betrays Powellâs words, that itâs not only the regional banks most affected by an overexposure to CRE loans.
On March 7th, the same day Powell gave his testimony to the Senate Banking Committee, the FDIC issued their public meeting and contradicted Powellâs words, saying that it is actually the large institutions that also have heavy exposure to CRE.
Chairman Martin Gruenberg made his announcement during the FDIC Quarterly Banking Profile (4th Quarter 2023), in which he stated:
The increase in noncurrent loan balances was greatest among CRE [Commercial Real Estate] loans and credit cards. Weak demand for office space has softened property values and higher interest rates are affecting credit quality and refinancing ability of office and other types of CRE loans. As a result, the noncurrent rate for nonowner occupied CRE loans is now at its highest level since first quarter of 2014, driven by portfolios at the largest banks…
READ FULL ARTICLE HERE… (winepressnews.com)
Home | Caravan to Midnight (zutalk.com)
Be First to Comment