The Federal Reserve is conducting a broad review of the exposures of the nation’s largest regional banks to the commercial real estate market. The move is spurred by concern over the rapidly deteriorating state of commercial real estate as well as a desire to expand the Fed’s supervision of banks.
“It’s part of a new normal for how they will be supervising banks,” CNBC’s Steve Liesman said while breaking the story. “They’re getting granular. For example looking at the banks’ concentration of construction loans versus multifamily versus motels and retail.”
Liesman says the look at commercial real estate began when the stress tests conducted earlier this year identified commercial real estate as a major area of concern.
The Fed will conduct “horizontal reviews,” which means looking at the loss rates of the same assets across different banks.
“There’s been no decision yet whether to actually run what they stress tests on the information they gather,” Liesman reported. A stress test would measure how the commercial real estate portfolios of banks would perform under different economic scenarios.