By Karey Wutkowski
WASHINGTON, Jan 20 (Reuters) – A top regulator on Wednesday told banks to stop dragging their feet and recognize losses on commercial real estate loans, a sector that is due to deteriorate in the coming quarters and drive bank failures.
Sheila Bair, chairman of the Federal Deposit Insurance Corp, said banks should try to modify troubled commercial real estate (CRE) loans, but must recognize losses if such a workout does not maximize value.
“The losses need to be recognized,” Bair stressed to a conference of the Commercial Mortgage Securities Association.
Bair, an activist regulator, has been hailed for her early warnings on the dangers of subprime lending and securitizations.
She said on Wednesday that she expects the rates of noncurrent CRE loans to continue to rise “in the coming quarters,” and reiterated her belief that the troubles in the sector will increasingly be a driver of bank failures this year.