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Barr: Liquidity pressures have eased; institutions focus on unrealized losses, CRE


“The office commercial real estate sector is under greater pressure than other areas of the industry, and it varies across the country,” Barr said. “We’re just looking very carefully at banks that are highly concentrated in office commercial real estate that are anticipating significant price declines. .”

Al Drago/Bloomberg

WASHINGTON — Federal Reserve Vice Chairman for Supervision Michael Barr said Wednesday that liquidity pressures are causing unstable Risks to the banking industry have largely subsided in 2023, but new risks continue to attract the attention of federal regulators.

Speaking to a crowd at the National Community Reinvestment Alliance’s Just Economy conference, Barr said regulators are particularly concerned about certain banks with higher levels of unrealized losses on securities on their balance sheets and banks that have concentrated investments in commercial real estate in certain types of businesses, he said. of commercial real estate properties (i.e. offices) pose a greater risk than other properties.

“The office commercial real estate sector is under greater pressure than other areas of the industry, and it varies across the country,” he said. “We’re just looking very carefully at banks that are highly concentrated in office commercial real estate that are anticipating significant price declines. .”

Regulatory agencies have Sounded the alarm Over the past year, banks have faced risks due to declining CRE real estate values ​​as many workers now work remotely permanently. As for when concerns about CRE will subside, Barr said it could take years, given the varying timing of real estate values. Refinance and Appraisal.

“Commercial real estate refinances happen on a regular basis. These are not done in a year or a month; these refinances happen slowly over time, so over the next two to three years,” he said . “We will see how the real estate industry handles refinancing in a higher interest rate environment than the very low interest rate environment it operated in prior to 2019.”

The Fed official also spoke about the agency’s approach to considering bank mergers at a time when other bank regulators — the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency — recently updated their own merger consideration policies. The Federal Reserve is reviewing its guidelines for approving mergers between banks, and the central bank is unlikely to update its policy at this time.

“I think it’s a very robust process that follows our existing guidance in this area,” he said. “We’re working with other banking institutions and the Department of Justice to see if those regulations should be updated. But that’s what we’re doing Doing work.” Thinking on an inter-agency basis, not just us doing something. “

Barr also spoke to Politico interviewer Victoria Guida about the legal battle over an overhaul of the regulations implementing the Community Reinvestment Act of 1977 — an overhaul that has been in the works for years under two administrations . matter, the final rule goes beyond the scope of the statute and violates the Administrative Procedure Act. CRA opponents win stylized victory In March, a Texas judge issued an injunction against the new CRA, delaying enforcement of the rule until the lawsuit was resolved.

While Barr did not comment directly on the lawsuit, he did push back on its spirit, saying Congress gave regulators ample latitude to update the CRA if necessary.

“They crafted the act in 1977 in a broad way and left it to the banking institutions to ensure that the CRA could continue to work over time,” he said. “It was crafted in a way that allowed the banking institutions to come together Regularly as we did in 1995 and now (nearly 30 years later with the 2023 rules) to ensure it keeps pace with the modern world we live in.”

Another institutional rulemaking that has drawn strong opposition from the industry is Basel III’s final capital requirements, which will force banks to increase the proportion of equity capital used to finance themselves.Fed Chairman Powell said recently In testimony before the House Financial Services Committee in March, he expected to make broad and substantive changes to the rules before they are finalized.

Barr dismissed any “outside chatter” about the rule and focused on specific comments the agency is carefully considering.

“We take all comments about these types of issues very seriously, and we are taking them very seriously. I hope we will make adjustments to the final rule,” he said. “I think it will be a good, strong one. Rules when it’s done, but we’ll make changes along the way.”





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