U.S. banks are at risk of sizable new loan losses, particularly on
commercial property, and some banks may not have sufficient capital to
fully cushion against losses, a Federal Reserve official said on
Monday.
Some large regional and community banks that have built up unusually
high concentrations in commercial real estate loans will be
"particularly affected" by conditions in those markets, said Jon
Greenlee, associate director of the Fed's Division of Banking
Supervision and Regulation.
In the second quarter, said Greenlee, "Credit
losses at banking organizations continued to rise, and banks face risks
of sizable additional credit losses given the outlook for production
and employment."
Greenlee's
comments were in testimony prepared for delivery to a House of
Representatives Oversight and Government Reform subcommittee.
"Poor
loan quality, subpar earnings, and uncertainty about future conditions
raise questions about capital adequacy for some institutions," he said.
While the
stability of the banking system has improved, it is far from robust as
banks face pressures from weakness in both residential and commercial
property markets, Greenlee said.
Although year-on-year housing price price
declines slowed in the second quarter, foreclosures and mortgage loss
severities are likely to remain high, he said.
Delinquencies
of mortgages backing commercial mortgage-backed securities have
increased markedly in recent months and market participants anticipate
the delinquency rates will rise by the end of the year, Greenlee said.
Fed
examiners are noticing a sharp deterioration in loans in banks'
portfolios and loans in commercial mortgage-backed securities, he said.
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