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CRE Concerns at Powell Hearings

March 12, 2024

Members on both sides of the aisle discussed the current risks associated with the commercial real estate market in last week’s House Financial Services Committee Hearing, asking Chair Jerome Powell how the Fed has been monitoring the situation.

What They’re Saying: Rep. Jim Himes (D-CT) emphasized CRE has been identified as “perhaps the most salient risk to the financial system” and asked Chair Powell if this risk is manageable and if the Fed has the tools and visibility it needs to address the issue.

• Powell replied CRE risk is manageable and that the Fed has been in touch with banks with significant concentrations to make sure they have a plan to deal with potential losses.
• He also noted that this is a problem the Fed will be working through for several years, noting that:

“You’ve got to have enough capital, enough liquidity, and a plan to take the losses that you’re probably going to take, and so we’ve been very active in this space with small and medium banks.” 

Rep. Ann Wagner (R-MO) also highlighted the “looming CRE crisis,” noting that she hopes the Fed is doing everything it can to ensure banks’ exposure remains manageable.

Finally, Rep. Stephen Lynch (D-MA) asked Chair Powell for his thoughts on the threat this issue poses to regional banks, asking if there is a concern about systemic risk or if the problem is isolated.

• Powell indicated the secular change in the economy has left the demand for office buildings and retail spaces much lower.
• Echoing his response to Rep. Himes, Powell noted that regulators have been working with banks on the issue, saying:

“It’s a serious problem…and more serious in some locations and jurisdictions and with some banks than others, but it’s one we’ll be working through.”

Federal Reserve Chair Powell in the hot seat.

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