Fed Manipulates Various Banking Risks – Orange County Register

Fed Manipulates Various Banking Risks – Orange County Register

A customer stands outside the shuttered headquarters of Silicon Valley Bank (SVB) on March 10, 2023 in Santa Clara, California. (Photo by Justin Sullivan/Getty Images)

The Federal Reserve’s top regulator will tell lawmakers that the central bank’s supervisory officials are focused on risks posed by the state of the U.S. economy.

Michael Barr, the Fed’s vice chairman for supervision, plans to tell the Senate Banking Committee that supervisors are conducting targeted reviews and working to monitor new products launched by lenders. The collapse of Silicon Valley Bank and Signature Bank in March exposed gaps in federal oversight and sparked calls from some lawmakers for greater scrutiny.

Fed officials are “conducting targeted reviews of banks that exhibit higher interest rates and liquidity risks and are conducting focused training and outreach on supervisory expectations around these risks,” Barr said in prepared remarks for Tuesday’s hearing.

The central bank is also “monitoring potential credit deterioration, especially within the consumer lending sectors and the commercial real estate sector,” he said, referring to commercial real estate.

US bank regulators, including the Federal Reserve, have for months been sounding the alarm about the commercial real estate market. In June, officials asked lenders to work with creditworthy borrowers facing stress in the sector. Landlords have come under pressure as borrowing costs rise.

Barr’s comments follow a report from the Federal Reserve last week that said the central bank was closely monitoring potential losses at banks caused by commercial real estate and rising interest rates. Office real estate companies are grappling with the shift toward hybrid business models.

For example, the collapse of WeWork Inc. By turning dozens of lease contracts upside down.

The co-working company’s bankruptcy filing contains a plan to terminate nearly 70 of those contracts, and that is set to exacerbate problems facing many WeWork owners: The tenant wants out and could have more power to leave.

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“There’s potentially a lot of space coming on the market,” said Ruth Kolb-Haber, CEO of Wharton Property Advisors. “Some of them will be taken by other joint operations, but many of them will be irrelevant. These buildings will be in serious trouble.”

Office owners are suffering from the slowdown caused by higher borrowing costs that are pressuring building values, as well as a shift in demand for tenants as remote work rises. Office prices fell 21% in October from a year earlier, according to real estate analytics firm Green Street.

This comes as a new risk emerges: a more informal approach to office allocation at work, according to analysts at Morgan Stanley.

“Alongside working from home, hot desking is one of the most significant structural headwinds facing the office market,” Sebastian Isola and colleagues wrote in a note to clients. “If adopted more widely, the reduction in floor space requirements would likely have a significant impact on occupational demand,” they said.

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