US banking regulators are “closely focused” on risks arising from commercial real estate loans that are putting pressure on some banks with heightened exposure to the industry, said Michael S Barr, the Federal Reserve’s vice chair for supervision, at a Columbia Law School banking conference on Friday.
Barr said that regulators are examining how banks manage commercial real estate loans, with a specific focus on risk assessment, risk mitigation actions, risk reporting to management and their financial preparedness for potential losses. This increased scrutiny comes as reduced demand for office space and higher interest rates create pressure on some commercial real estate valuations, particularly in the office sector.
