In a testimony before the Senate Banking Committee, Treasury Secretary Janet Yellen expressed concern about the potential stress on smaller banks due to high commercial real estate vacancies. While she acknowledged the exposure of large banks to be “quite low,” Yellen noted that smaller banks may be experiencing stress related to high office building vacancy rates, high interest rates, and falling valuations. However, she reassured lawmakers that this situation is not expected to create a systemic risk for the nation’s financial system.
Yellen’s concern about the impact of commercial real estate vacancies on smaller banks comes at a time when some regional banks, such as New York Community Bancorp, have experienced increased pressure. The recent disclosure of a surprise loss and a spike in loan losses by New York Community Bancorp has led to a downgrade of the bank’s credit grade to junk, causing its stock to decline in value. Yellen emphasized the importance of banking regulators and the Financial Stability Oversight Council working closely with institutions to address the needs of borrowers amidst these challenges.
Despite the concern about commercial real estate and its impact on smaller banks, Yellen highlighted the overall strength of the US financial system. She also pointed to the resilience of the US economy, noting that inflation is slowing while wages continue to grow. Yellen’s testimony reflected a focus not only on identifying potential risks but also on emphasizing the encouraging signs of economic recovery and stability in the financial system.
