The U.S. Treasury Secretary, Janet Yellen, said on Thursday that she expects more banking stress and financial losses stemming from the weakness in the commercial real estate market, but believes that it will not pose a systemic risk to the U.S. banking system.
Yellen stated in a hearing before the U.S. Senate Banking Committee that bank regulators are working with financial institutions to address the risks caused by higher post-pandemic vacancy rates for many commercial buildings in larger cities and higher interest rates for loan refinancing.
“Valuations are declining. Therefore, it is obvious that there will be stress and associated losses,” Yellen said.
“I hope and believe that this will not end up becoming a systemic risk to the banking system. The exposure of the largest banks is quite low, but there may be smaller banks that are under stress due to these events.”
Yellen’s testimony marks the second time this week that she has sought to downplay the risks of commercial real estate, telling the U.S. House Committee on Financial Services on Tuesday that she was concerned about tensions in commercial real estate, but that the situation was manageable.