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