- The commercial real estate sector is facing some threats due to certain factors.
- The veterans of the industry and top bureaucrats are now raising concerns about this.
The economy of every country is primarily supported by its banks. And banks operate on a lot of factors, and the key among them is credit. As per the current news, the US banking system is having difficulty tackling it. Michael J. Hsu, the Acting Comptroller of the Currency, said in an official statement that the country’s banks are exposed to potential risks.
Commenting on the state of credit, Hsu said that banks should be worried about how the credit markets are acting lately. According to him, the banks should take some steps to keep the worst from happening.
Things that US banks should be doing
Here are some suggestions that Hsu gives to banks for avoiding the risks.
- They should not haste in making assumptions about the situation getting better in the credit sector, especially in the wake of recovery after the pandemic.
- They should re-evaluate their liabilities and assets spread across an array of industries.
- They should maintain liquidity and capital while assessing their risk profile.
- They should also be prompt in answering their customers, depositors, stakeholders, and investors in telling the veritable status of operations and risk scenarios.
Before serving the Office of the Comptroller of the Currency (OCC), Hsu was a part of the Federal Reserve Board of Governors. He pointed out that the signs of stress are becoming very specific in some credit markets, especially in the commercial real estate sector. Per his statement, the overall credit risk isn’t worrisome, but the stress indicators are becoming more visible.
Analyzing & tracing the history
In particular commercial real estate and consumer credit segments, operational risk has increased. Furthermore, he associated these risks with the growing cyber threats and the digitization of banking products and services. As per the report released by Statista, consumer debt rose high in the last quarter due to the uptick in mortgage numbers. The report suggested that the ascend is faster than usual and may have other repercussions too.
Billionaire real estate entrepreneur Jeff Greene voiced the same concerns lately. He said the US banks and investors could face problems due to the rising interest rates.
He pointed out that most people investing in the market are relatively new. They don’t know about the historical impact of the dotcom bust on the real estate sector in 2002. Talking about that time, he said that we saw artificially-depressed interest rates back then. Investors today haven’t seen that occurrence yet in the market.
Most of them are worried about paying off their loans and the effect of rising interest on the EMIs. As a result, individuals and businesses may even delay buying new properties, which would drag the real estate industry into trouble.
Many people and businesses might be feeling the impact of it already. However, with some veterans issuing warning statements, we may see intervention from the federal bodies. But no one can be certain about it right now. We will have to wait and see how this scenario changes over time.