Financial Regulatory Forum

U.S. Fed reviewing bank commercial property exposure – source

September 16, 2009

A man walks down a staircase of an office building in Tokyo April 20, 2009. WASHINGTON, Sept 16 (Reuters) – The Federal Reserve is conducting a review of commercial real estate exposures at U.S. banks, a Fed source said on Wednesday.

The review is part of a revamped regulatory approach at the central bank that draws on approaches used during the recent capital adequacy examinations at the 19 largest U.S. banks, said the source, who spoke on condition of anonymity.

The commercial property review is not a stress test, which would involve making economic projections, and involves banks that are smaller than the 19 that were subject to the capital adequacy review, the source said.

Given well-known stresses in commercial real estate markets, it should not be surprising that the Fed is looking at commercial real estate, the source said.

Fed officials have pointed to weakness in commercial real estate as one of the main areas of remaining weakness in an economy that is pulling out of recession. The Fed received an update on commercial real estate conditions at a closed board meeting Sept. 8.

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