Thursday, September 17, 2009

Fed Scrutinizing Banks' Commercial Property Exposure

According to the FT, the Fed has decided to "review" banks' exposure to commercial real estate. If there is any sign that the Fed is ill-equipped to be the master systemic regulator responsible for ensuring that banks aren't piling on too much risk, this is it. You see, TODAY is not the day to begin to review commercial real estate exposure. It's about a year or two too late for that. The commercial real estate market has come to a complete halt and there is little anyone can do to stop the avalanche of defaults and distressed sales that are certain to happen because of soured commercial real estate deals.

Nevertheless, the Fed will look at a cross-section of banks to build a picture of how resilient institutions are to the troubled market. They aren't calling this a "stress test." No, this is different. The article doesn't say how or why, or what the Fed is even planning to do after its "review." Apparently, a "cross-disciplinary team will look at a variety of commercial real estate assets on banks' balance sheets, encompassing loans and CMBS." So, don't worry. They're on the case. The commercial real estate crisis is contained.