Yellen: It’s ‘obvious’ that empty office buildings will create banking stress and losses – CNN

new york
CNN
—

Treasury Secretary Janet Yellen said Thursday that high commercial real estate vacancy rates are expected to cause some stress for small banks. However, he said he did not believe they would pose a systemic risk to the country’s financial system.

Appearing on the Hill as part of her annual testimony before the Senate Banking Committee, Yellen told lawmakers Thursday that big banks’ exposure is “pretty low,” but that she is concerned about high vacancy rates in office buildings and He said some smaller banks may also be experiencing stress related to high interest rates. Declining interest rates and valuations.

“Obviously there will be stress and loss associated with this,” Yellen said.

“This will be a concern for some banks, but overall the system is well capitalized,” he said, noting that the U.S. financial system is generally healthy.

Early this weekYellen defended the country’s economic recovery from the pandemic and regulators’ efforts to thwart a possible seizure after the sudden pandemic last spring. Failure of Silicon Valley Bank.

“I have concerns about commercial real estate,” Yellen said Tuesday. He noted that the combination of rising interest rates and rising vacancy rates in office buildings is creating problems, especially as real estate loans come due.

Yellen said these issues in cities with high vacancy rates “lead to a lot of stress on the owners of these properties.”

Yellen also said she believed the problem was manageable, noting that bank regulators and the Financial Stability Oversight Council, which she leads, are working closely with financial institutions on how to meet the needs of borrowers. he added.

The council also closely monitors non-traditional banking institutions, especially non-banks. mortgage lendersaid Yellen.

He said that unlike traditional financial institutions, non-bank mortgage companies lack access to deposits, are more reliant on short-term loans, and are at risk of having their credit facilities terminated during stressful times. , they pointed out that they also have no access to funds. Fed discount window (This is a way for the central bank to lend directly to banks).

“Mortgage servicing rights are illiquid assets because they tend to have very limited capital and loss-absorbing capacity,” he said. “There is concern that in a stressful market environment, any of these could fail. This has become very important in the mortgage market.”

But Yellen’s testimony to Congress this week comes as some regional banks are under pressure.

new york community bancorp Recently revealed unexpected losses and sharp increase in loan losses Because commercial real estate loans go bankrupt.

The troubled regional lender sought to reassure investors Wednesday that it has enough cash to survive after the stock price drop. It has lost about 60% of its value in the past 8 days. Moody’s Investors Service then downgraded the bank’s credit rating to junk.

Hicksville-based bank stock; Acquired $40 billion worth of assets from failed Signature Bank Shares last March were down 2% by Thursday morning.

Yellen spoke about the health of the U.S. economy, which she acknowledged is outperforming the world’s major economies, and highlighted how inflation has slowed while wages continue to rise.

“Prices are no longer rising as quickly,” he said, adding that wage increases that outpace inflation mean “that even if the median U.S. worker bought the same typical basket of goods in 2019, it would still That means you have $1,400 left to spend or save, he added.

But Sen. John Fetterman, D-Pennsylvania, said some of that strong economic data seems to have been “lost in translation” with what Americans are experiencing in their daily lives. He said: viral video highlight expensive mcdonalds meal.

In response, Yellen said recent consumer sentiment surveys show Americans’ attitudes about the economy and their own finances are improving, especially now that inflation is slowing.

“People can be more negative about the economy when asked about the economy and how others are doing, but so are their evaluations of their own situation and actions when it comes to spending and starting a small business.” [are more positive]” said Yellen.

Yellen added that small business formation remains strong. In 2023, a record 5.45 million business applications were filed. According to Census Bureau data.

“That’s really only going to happen if people have confidence in the future of their economy,” she said.

CNN’s Matt Egan contributed to this report.