Vice Chairman of the Federal Reserve responds to the crisis of regional bank commercial real estate loans: Will focus on and has started to lower regulatory ratings.

Media reports earlier stated that more than 20 regional banks in the United States had excessive commercial real estate loan portfolios by the end of last year. Regulatory authorities such as the Federal Reserve have instructed these loans to undergo more scrutiny. Michael Barr, the Vice Chairman for Bank Supervision at the Federal Reserve, stated in a speech at Columbia University in New York on Friday that regulatory agencies are closely monitoring the risks in commercial real estate loans and have begun downgrading the regulatory ratings of banks under significant financial pressure.

He mentioned that regulators are reviewing how banks are taking measures to mitigate potential losses, how they are reporting risks to their boards of directors and senior management, and whether they have sufficient reserves and capital to handle losses from commercial real estate loans. "Regulators are continuously monitoring a small number of banks that may face funding pressure due to risk allocation," he said.

Following the collapse of three large regional lending institutions last year, regulatory agencies are strengthening their reviews. The Federal Reserve released guidelines for its annual stress tests on Thursday, with a particular emphasis on identifying risks in commercial real estate. Barr expressed concerns about the impact of economic, interest rate, and financial changes on banks. "Due to the intensification of the risk environment and increased regulatory attention, the Federal Reserve has had more regulatory findings in the past year, and the rate of downgrading regulatory ratings is higher than last year."

Barr stated that the Federal Reserve is seeking to improve the speed, intensity, and flexibility of its supervision to match the risks, scale, and complexity of the banks it regulates. At the same time, he said that as regional banks become larger and more complex, it is expected that their executives should enhance their ability to manage company risks.

However, he also pointed out that not all commercial real estate is the same, and not all of it is bad. He noted that some cities perform better than others, and the performance of some high-end properties and buildings is better than others.

According to previous reports by Wall Street News, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) have publicly warned the banking industry to carefully evaluate large loans for office buildings, retail storefronts, and other commercial real estate. Based on data analysis of more than 350 bank holding companies by the media, it was found that more than 20 regional banks in the United States had excessive commercial real estate loan portfolios by the end of last year. The analysis suggests that this signal indicates that more banks may face regulatory pressure and be required to increase reserves.

The three regulatory agencies stated that they will focus on banks whose commercial real estate loan portfolios exceed three times their total capital. Among these banks, regulators will pay particular attention to those whose commercial real estate loan portfolios have grown by at least 50% over the past three years. If these two thresholds are exceeded, they may face strict scrutiny. This indicates that regulatory agencies are seeking to identify banks that may face risks due to excessive holdings of commercial real estate in order to take action before the risks materialize.