US Treasury Secretary Janet Yellen said on Thursday that she expects additional bank stress and financial losses from weakness in the commercial real estate market but believes this will not pose a systemic risk to the banking system.
Yellen told a Senate Banking Committee hearing that bank regulators are working with banks to address risks caused by higher post-pandemic vacancy rates for many office buildings in larger cities, and higher interest rates for refinancing loans.
“Valuations are falling. And so it’s obvious that there’s going to be stress and losses that are associated with this,” Yellen said.
“I hope and believe that this will not end up being a systemic risk to the banking system. The exposure of the largest banks is quite low, but there may be smaller banks that are stressed by these developments.”
She did not directly address the stock-market sell-off experienced by New York Community Bancorp, which last week reported a surprise fourth-quarter loss after building bigger provisions for potential commercial real estate loan defaults.
The incident also has hit shares of some other regional US banks as investors fear weak demand for offices could trigger a wave of defaults and pressure banks, which are hoping to avoid selling commercial real estate loans at significant discounts.
Yellen’s testimony marks the second time this week that she sought to downplay the commercial real estate risks, telling the House Financial Services Committee on Tuesday that she was concerned about stresses in commercial real estate, but that the situation was manageable. Source: Reuters
