Yellen concerned about US commercial real estate but says stresses manageable (updated)

Signature Bank

06/02/2024 18:35

(Adds quotes on commercial real estate stress, details on
recent regional bank pressures after paragraph 3)
    By David Lawder
       WASHINGTON, Feb 6 (Reuters) - U.S. Treasury Secretary
Janet Yellen on Tuesday said she is concerned about looming
commercial real estate stresses on banks and property owners,
but believes the situation is manageable with assistance from
bank regulators.
    Yellen told a House Financial Services Committee hearing
that refinancings of commercial real estate loans coming due
amid higher interest rates and high vacancies due to shifting
work patterns "is going to put a lot of stress on the owners of
these properties."
    Some banks also may come under stress due to lower demand
for commercial real estate following the COVID-19 pandemic that
shifted more work to home offices, but banking supervisors were
"very focused" on helping banks manage these risks.
        "I'm concerned. I believe it's manageable, although
there may be some institutions that are quite stressed by this
problem," Yellen said.
  
        The multi-regulator Financial Stability Oversight
Council is focused on commercial real estate and bank
supervisory agencies are working closely with banks on ways the
institutions can work with borrowers that have problems.
  
        "They're, in some cases, working to make sure that loan
loss reserves are built up to cover losses, that dividend
policies are appropriate, that liquidity is adequate," Yellen
said of the bank regulators.
  
        Nearly a year after the failures of specialist lenders
Silicon Valley Bank and Signature Bank shook confidence in
regional banks, a fresh sell-off hit the sector last week as New
York Community Bancorp  NYCB.N  reported problems in its
commercial real estate portfolio, a cautionary sign of 
    potential pain ahead
    .  
  
        In the immediate aftermath of the SVB failure, Yellen
said the Treasury would safeguard deposits at failing banks
large and small that threatened financial contagion, but later
clarified that Treasury had not considered 
    "blanket insurance"
     for all deposits without approval from Congress.
  
        Asked if she would do whatever is necessary to prevent a
second wave of bank failures, Yellen declined comment on
individual bank situations but added: "I would work with the
banking supervisors to make sure that we addressed anything that
looked like it could create systemic risk."  
  

 (Reporting by David Lawder; Editing by Andrea Ricci and Mark
Porter)
 ((David.Lawder@tr.com; +1 202 843 6288;))