Stress tests ignored CRE threat – Congress
US banks face hundreds of billions of dollars in losses on commercial real estate loans, a danger that was missed by the Capital Adequacy Program (Cap) stress tests in early 2009.
The Congressional Oversight Panel for the Troubled Asset Relief Program, in a report issued in January, predicted that banks could see up to $300 billion in losses on their commercial real estate portfolios, and warned the threat this poses to the US financial system was completely overlooked by the Cap.
Between now and 2014, “$1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present underwater”, the report said.
The panel pointed out the bulk of commercial real estate losses would come after the expiry of the Tarp – already being wound down and set to expire on October 3. It warned “the size of the commercial real estate market means that its disruption could also have ripple effects throughout the broader economy, prolonging the financial crisis”.
In addition, although the bulk of the losses will come in 2011 and later, the stress tests only examined banks’ capital adequacy under two stress scenarios up to the end of 2010. Furthermore, the stress tests looked only at 19 major banks; while the heaviest burden of the commercial real estate collapse will fall on small and medium-sized lenders, who have half the total system exposure to commercial real estate, despite having only 15% of total assets.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Industry calls for major rethink of Basel III rules
Isda AGM: Divergence on implementation suggests rules could be flawed, bankers say
Saudi Arabia poised to become clean netting jurisdiction
Isda AGM: Netting regulation awaiting final approvals from regulators
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
CFTC chair backs easing of G-Sib surcharge in Basel endgame
Isda AGM: Fed’s proposed surcharge changes could hike client clearing cost by 80%
UK investment firms feeling the heat on prudential rules
Signs firms are falling behind FCA’s expectations on wind-down and liquidity risk management
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies
Bank of Communications moves early to meet TLAC requirements
China Construction Bank becomes last China G-Sib to release TLAC plans
Most read
- Top 10 operational risks for 2024
- Top 10 op risks: third parties stoke cyber risk
- Japanese megabanks shun internal models as FRTB bites