NY watchdog warns of bank exposure to CRE

More than seven months after Signature Bank’s collapse, the New York State Department of Financial Services said banks’ exposure to commercial real estate. 

The watchdog, which answered to the United States Congress earlier this year over the collapse, remains concerned with unrealized losses stemming from the rise of interest rates commercial real estate exposure, superintendent Adrienne Harris told Bloomberg. 

Loan-to-value ratios for refinancings, diversification and risk management before loans come due are among the aspects regulators were looking at in terms of commercial exposure.  

Bank exposure to commercial real estate isn’t only a concern in the Empire State. A slowdown in lending by banks in markets across the country sparked fears of a “doom-loop” scenario.

Total bank exposure to commercial real estate across the country to be $3.6 trillion, estimated to be 20 percent of their deposits, according to a recent analysis from the Wall Street Journal. Holdings of CMBS and loans to nonbank lenders accounted for $623 billion of that as of the end of last year.

Regional banks — like Signature — spent the better part of the last decade going to town on commercial loans, but the pandemic and rising interest rates have turned those deals into bad bets. Property prices, already falling in the sector, are further impacted by the lending cutbacks, leading to more lender losses and creating a downward loop for all involved.

In April, the department released an internal review of the events that led to Signature’s collapse and pointed to recommendations for improvements to lender supervision, including streamlined processes and stress testing.

In terms of agency practices, Harris said the state department was looking at the potential of making examinations “go faster without sacrificing rigor.”

— Holden Walter-Warner

Read more

New York

What’s next for Signature’s loans? 

National

Banks’ exposure to CRE triggers “doom-loop” fears

National

Distressed CRE loans surge nationwide