“Stabilization” among commercial real estate (CRE) sectors was noted in a joint regulators’ presentation at the meeting of the Financial Stability Oversight Council (FSOC) Wednesday, according to a readout issued late that day by the Treasury Department.
The presentation by staff members of the Federal Deposit Insurance Corp. (FDIC), Office of the Comptroller of the Currency (OCC) and the Federal Housing Finance Agency (FHFA), according to Treasury, purportedly reported stabilization across CRE sectors “despite some continued headwinds in the office and multifamily segments.” The presentation, Treasury said, also described actions taken by supervisors to mitigate CRE risks at their regulated institutions in recent years.
The readout provided no additional details.
The presentation on CRE stands in contrast to other recent reports and presentations. On May 29, Federal Reserve Board Gov. Adriana Kugler noted her concern of whether stresses in U.S. CRE “could potentially spill over to the rest of the U.S. economy.”
“The CRE sector continues to face challenges from low vacancy rates and valuation losses, especially in urban centers for the office sector,” Kugler said. “Another challenge is that some banks, insurers, and securitization vehicles continued to have concentrated exposures to CRE. As we have seen in past crises, such as the Global Financial Crisis, vulnerabilities in specific sectors can have far-reaching consequences for the financial system. Understanding potential vulnerabilities and potential domino effects are vital for maintaining overall economic stability and crafting preemptive policies.”
On May 28, in first quarter performance numbers, the FDIC noted that past-due and nonaccrual (PDNA) loans for CRE portfolios “is the highest it has been since the fourth quarter of 2014 at 1.49%.” The FDIC said multifamily CRE PDNAs have grown the most in the past year, up 88 bp to 1.47%.
In other areas, the FSOC readout reported:
- The Fed, FDIC, and the OCC are taking efforts to enhance their supervisory and regulatory frameworks and to focus bank supervision on material financial risks.
- President’s Working Group on Digital Asset Markets (along with the chairman of the Securities and Exchange Commission (SEC) and the acting chairman of the Commodity Futures Trading Commission (CFTC)) discussed ongoing efforts to “promote U.S. leadership in digital assets and financial technology and to provide greater regulatory clarity and certainty to digital asset markets.”
- The Treasury, SEC, and Office of Financial Research (OFR) reported on market developments related to corporate credit, including the continued growth of private credit (that is, lending by non-bank financial institutions, such as private equity firms, directly to businesses, rather than through public markets or banks.)
READOUT: Financial Stability Oversight Council Meeting on
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