Yellen warns of “stress and loss” in banking sector

U.S. Treasury Secretary Janet Yellen said she expects “stress and losses” in the banking sector due to the weakness in the commercial real estate market, but that she believes this will not pose a risk to the banking system. Yellen attended a hearing held by the U.S. Senate Committee on Banking, Housing and Urban Affairs regarding the annual report of the Financial Stability Oversight Council. Answering questions from committee members, Yellen said that when asked about the impact of the decrease in demand for commercial real estate on the real estate and banking sectors, they are examining the issue comprehensively and working with banking regulators to understand the risks. “Small banks may be negatively affected by these developments” Pointing out that vacancy rates have increased significantly in office buildings especially in metropolitan areas, Yellen said, “Interest rates are quite high, valuations are falling. So it is clear that there will be stress and losses associated with this.” Stating that banking regulators are working with banks to manage and detect this risk, Yellen expressed that she believes this will not pose a systemic risk to the banking system. US Treasury Secretary Yellen said, “The risk of large banks is quite low, but there may be smaller banks that are negatively affected by these developments.” “The system is well capitalized” When asked whether the banking sector in the US was strong, Yellen said, “All things considered, the answer is yes.” Referring to some stresses related to commercial real estate, Yellen said, “This will be a concern for some banks, but all things considered, the system is well capitalized.” In response to a question about the risks of climate change to economic and financial stability, Yellen expressed concern about the lack of affordable insurance in some parts of the US due to the increasing risks from climate change. Yellen stated that as climate risks intensify, the lack of affordable insurance is harming the well-being of households in terms of the cost of living. Secretary Yellen explained that many banks are exposed to loans and the risks that may arise in the event of uninsured losses, and that these pose risks to financial stability.