Federal Reserve Chair Jay Powell says his agency is paying close attention to financial institutions that are heavily exposed to the commercial real estate sector.
In a new appearance at the ECB Forum on Central Banking, Powell addressed concerns about commercial real estate loans and whether they pose a serious threat to the already embattled banking industry.
Powell says the Fed is closely monitoring the situation, and a surprising level of exposure to the sector is concentrated within America’s regional banks.
“It’s something that we, of course, are watching carefully. The way it lays out is the large banks don’t have large concentrations of commercial real estate. That’s a good place to start.
A surprisingly large part of exposure to commercial real estate is in the banks that are under $100 billion. There the worry is more banks that have a high concentration, and they are relatively few.
So it’s something that we’re carefully monitoring. Bank supervision has a playbook for this, so supervisors are talking to banks about their concentration in real estate and what can they do and how do they manage themselves out of this. It’s something that we’re well aware of. It’s not a surprise. We’re focusing on it.”
According to the Federal Reserve’s latest data, commercial real estate loans amount to $2.9 trillion as of May of this year.
And according to a recent report from Goldman Sachs, small and mid-sized banks hold about 67.2% of all outstanding commercial real estate loans.
Late last month, a report from S&P Global Market Intelligence revealed that 576 banks are now overexposed to commercial real estate loans.
The increased exposure comes at a time when the sector is under significant pressure as large swaths of workers continue to work at home for part or full time.
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