Big lenders seen weathering losses
Fed says smaller banks strained by property lending
WASHINGTON — The Federal Reserve doesn’t see losses from failed commercial real estate loans as a threat to big financial institutions, although weakness in the commercial market will continue to dampen economic growth, an official said yesterday.
Patrick Parkinson, the Fed’s director of banking supervision, also said that many smaller banks with heavy concentrations of commercial real estate loans will continue to feel strain. Hundreds of billions in losses on loans for commercial property and development were a major reason why 157 US banks failed in 2010, the highest annual tally in nearly two decades.
Parkinson told a hearing of the Congressional Oversight Panel monitoring the financial bailout that many other banks with the heavy concentrations are managing the risk.
“We are starting to see some signs’’ that the tightening of credit that followed the financial crisis is easing, Parkinson testified. Banks are actively looking for borrowers again, he said.
Banks around the country ran into trouble on their loans for construction and development, which became the fastest-growing category of troubled loans for US banks, especially in overbuilt areas. Banks often lent too much for land and buildings whose prices were inflated by the real estate bubble.
Smaller banks are more vulnerable to the losses than big Wall Street institutions, because commercial real estate makes up a larger portion of their loan portfolio.
The oversight panel issued a report a year ago warning that banks faced up to $300 billion in losses on the loans. As of February 2010, commercial property values had fallen more than 40 percent in the past three years.
Now the erosion in that market has leveled off, “and there are some early signs of price stabilization in a number of key markets,’’ he said. Still, he said, the market is distressed.