Losses on commercial real estate loans pose the biggest risk to U.S. banks this year, troubling smaller lenders while unlikely to threaten the entire financial system, U.S. bank examiners concluded during a review.
Federal Reserve Governor Elizabeth Duke said in a Jan. 4 speech that credit conditions in commercial real estate ā??are particularly strained.ā? Fed Governor Daniel Tarullo cited commercial real estate as one of the ā??key trouble spotsā? in congressional testimony in October after the Fed stepped up a review of banksā?? exposure to such loans.
The default rate on commercial mortgages held by U.S. banks more than doubled to 3.4 percent in the third quarter, according to Real Estate Econometrics LLC, a property research firm in New York. Default rates in the first three quarters of 2009 have been the highest since 1993, according to the firm.
Banks and investors held about $3.5 trillion of commercial real estate debt in June 2009, with about $1.7 trillion of that total on the books of banks and thrifts, according to Fed data. About $500 billion of the loans will mature each year over the next few years, Fed officials say.
