Bank Failures
Bank Failures
“This is a problem we’ll be working on for years more, I’m sure”: Jerome Powell
Federal Reserve chair Jerome Powell (Photo Illustration by Steven Dilakian for The Real Deal with Getty)
The pain of small and mid-sized banks isn’t over yet, according to Federal Reserve chair Jerome Powell.
Falling office values will harm more regional banks as a result of their ties to commercial real estate, Powell warned at a hearing on Thursday before the Senate Banking Committee reported by The Hill.
Office struggles affect downtown neighborhoods in cities, Powell noted, in turn affecting banks with loans out to retail assets in central business districts.
“This is a problem we’ll be working on for years more, I’m sure,” Powell said. “There will be bank failures.”
After First Republic Bank bit the dust last week, the Federal Reserve signaled a pause in rate increases could be on the table at the next meeting in June.
Tighter lending practices are to thank for that potential rate hike reprieve. On the heels of this year’s third bank collapse, regional lenders fearing liquidity issues will rein in debt offerings.
Fewer loans means less spending by consumers and businesses, which could satisfy the Fed’s quest to bring down inflation.
“The question becomes: Will the tightening of credit conditions to retain or improve liquidity by those banks be enough to significantly slow economic activity?” said Fannie Mae Chief Economist Douglas Duncan.
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In early March, Brown Harris Stevens broker Mindy Diane Feldman had reservations about a First Republic Bank loan.
A buyer had offered to purchase a New York City co-op and had pre-approval from First Republic for a below-market-rate mortgage — the bank’s specialty. The broker wanted to ensure that if the Federal Reserve…