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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Report: Fed to Conduct Bank Stress Test for Commercial Real Estate Exposure

The Federal Reserve is launching a review of the balance sheets of the nation's largest regional banks to determine their exposure to losses in the commercial real estate sector, which many consider the next shoe to drop, CNBC's Steve Liesman reported late this morning.

Liesman said the review sounds similar to the "stress test" applied to the nation's largest banks earlier this year that dove into their balance sheets to see how much damage had been wrought by toxic assets related to bad residential real estate loans. As a result, some banks were told to raise more capital.

What's interesting about this is it shows the Fed acting quickly before a crisis hits, which Fed Chairman Ben Bernanke has promised to do.

For months, we've been waiting for the next shoe -- commercial real estate -- to drop. This means that all the economic problems that hit residential real estate are bound to hit the commercial sector. Lost jobs means lost income, which means stores close, malls go vacant, property owners default on loans and so on. Some argue this could lead to a second credit crisis the size of the one caused by the subprime mortgages in the residential sector.

PNC Chairman Jim Rohr argued during an August visit to The Post that the commercial real estate bust wouldn't be as bad as the residential one. His reason: If a mall loses a tenant, it can re-rent the space to someone else at a lower rate. You can read his entire argument by clicking here.

-- Frank Ahrens
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By Frank Ahrens  |  September 16, 2009; 12:55 PM ET
Categories:  The Ticker  | Tags: CNBC, Jim Rohr, Steve Liesman, commercial real estate, sub-prime  
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Next: Home Builders Index Creeps Up in September

Comments

Bernanke says Recession over. Do you really believe it?

The GDP measures Gross National Product/economic growth. The cash for Clunkers, record home foreclosure and short sales, $8,000 first time home buyer tax credit, and government stimulus edged up the GDP to egregiously justify a "by definition" statement such as "Recession Over." But now, as the giveaway money runs out, keep your eye on the ball, October, November, December, 2009. In real estate, think of it this way: You bought a home for $500,000 in 2005. A month ago your home had fallen in value to $250,000. The $8,000 tax credit created more buying. Your home value went up to $253,000. Would you announce to the world that the real estate market is no longer in dire straights?

Warmest,

Richard Michael Abraham, Founder

The REDI Foundation www.redii.org info@redii.org

Posted by: info96 | September 16, 2009 7:36 PM | Report abuse

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