Some US officials believe that the increase in non-performing loans in commercial real estate may cause some banks to go out of business, but it will not pose a risk to the entire system. Federal Reserve Chairman Jerome Powell agreed.
Powell told lawmakers at the Senate Banking Committee hearing on Thursday that the Federal Reserve is communicating with banks to ensure they can handle potential losses. Powell's statement repeated Treasury Secretary Janet Yellen's assessment. Yellen said last month that there may be some closures, but the situation will be “manageable.”
“We have identified banks with a high concentration of commercial real estate, particularly office buildings, retail and other commercial properties that are more affected,” Powell said. “I'm sure this is a problem we'll spend years solving. Banks will go out of business, but they won't be big banks.”
Financial regulators have said for months that they are closely watching the impact of the struggling commercial real estate market on the financial system.
Also, Martin Gruenberg, head of the US Federal Deposit Insurance Corporation (FDIC), said on Thursday that overdue payments for commercial properties used by non-owners reached the highest level since the first few months of 2014. The banking sector is still strong, he said, but “the deterioration of certain loan portfolios, particularly loans for office buildings and other types of commercial real estate, is worth monitoring.”