'There Will Be More Failures,' Powell Says In Warning For Regional Banks Over Commercial Real Estate Loans
Portfolio Pulse from Neil Dennis
Federal Reserve Chairman Jerome Powell warned of more bank failures, particularly among regional banks with significant exposure to commercial real estate loans. Powell highlighted the issue is more pronounced in smaller and medium-sized banks, with some holding CRE loans worth nearly 35% of their total assets. The shift to remote work during the COVID-19 pandemic has left 19% of U.S. offices empty, exacerbating the problem. Truist Financial Corp. (TFC), U.S. Bancorp (USB), and New York Community Bancorp are among the banks with the largest exposures. Despite the concerns, the SPDR S&P Regional Banking ETF (KRE) and shares of TFC and USB have remained relatively stable, while NYCB's shares have dropped significantly.
March 08, 2024 | 6:04 pm
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NEUTRAL IMPACT
SPDR S&P Regional Banking ETF (KRE) tracks the regional banking sector, which has been relatively calm with only a 3% fall despite CRE loan concerns.
KRE's minor decline reflects a cautious but not panicked investor response to regional banks' CRE loan exposures.
CONFIDENCE 70
IMPORTANCE 60
RELEVANCE 70
NEUTRAL IMPACT
Truist Financial Corp. has significant exposure to CRE loans but has been cutting back on CRE lending. Shares have remained flat on the year.
TFC's proactive measures to reduce CRE lending might mitigate negative impacts, but the sector's overall risk keeps the outlook cautious.
CONFIDENCE 75
IMPORTANCE 70
RELEVANCE 80
NEUTRAL IMPACT
U.S. Bancorp holds $52.9 billion in CRE loans but shares have remained stable on the year.
USB's stability despite significant CRE exposure suggests investor confidence or mitigating factors, but caution remains due to sector risks.
CONFIDENCE 75
IMPORTANCE 70
RELEVANCE 80