Key Words: ‘Some losses’ in commercial real estate and Treasurys may still need to work ‘through the banking sector,’ says Fed’s Kashkari

by | Mar 26, 2023 | Stock Market

“‘There are a lot of commercial real-estate assets in the banking sector and there are some losses there that will probably work its way through the banking sector. So that process will take time to fully become clear.’”

— Neel Kashkari, Minneapolis Fed president

That’s Neel Kashkari, president and chief executive officer of the Federal Reserve Bank of Minneapolis, explaining the state of the banking system during a Sunday interview on CBS’s “Face the Nation.” Jitters surrounding banks have raised some questions about the roughly $5.5 trillion U.S. commercial real estate debt market.

Rising interest rates can make it harder to refinance debt for property owners and overall values of debt tied to real estate have slumped, weighing on banks who have exposures. Small banks have become key players in commercial real estate over the past two decades. The Fed president emphasized that the banking system “is resilient and it’s sound,” but cautioned that the troubles emanating from the banking sector may not be over. “We know that there are other banks that have some exposure to long-date Treasury bonds, who have some duration risk, as they call it, on their books,” Kashkari said. He said that current challenges with banks “definitely brings us closer” to recession but warned that it may still be too early to know the impact of troubled banks on the economy.

Kashkari said while large deposit outflows that some small to midsize banks have experienced in recent weeks have slowed, parts of the capital markets “have largely been closed” for w …

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