By Jesús Aguado and David Latona
MADRID (Reuters) – The Federal Reserve is still monitoring the situation in the banking sector “very carefully” to address potential loopholes, as Fed chair Jerome Powell (Jerome Powell) said Thursday that the commercial real estate industry will be hit hard.
Powell told a Bank of Spain event in Madrid that “we are very reluctant to say” whether the turmoil in the sector is over. . “Our job is to worry about things.”
Powell acknowledged that the industry still has some funding holes – as seen during the banking crisis in March, when a deposit run led to Silicon Valley Bank (SVB) and two others. U.S. banks have failed – even though “deposit flows have stabilized.”
SVB and two other banks find themselves in the wrong place for Fed rate hikes, suffering huge losses in the U.S. Unrealized losses hold Treasuries, which spooks uninsured savers.
Powell said that overall, bank capital is “strong and very, very liquid,” as indicated by the Fed’s annual health check on Wednesday.
Regarding the commercial real estate sector, Powell acknowledged that “valuation adjustments are underway, mainly for offices. Working from home has changed the situation,” he said, although risks are not concentrated in
The Fed chair also said U.S. regulators have yet to address money market funds.
“There were some massive inflows into the markets during the currency crisis in March. Those have stopped,” he said.
In any tightening cycle, people tend to move money from bank deposits to money market funds over time due to higher yields.
“It’s causing the banks to tighten lending terms, which is certainly the desired outcome. As long as it’s an orderly process, it should be part of our job,” Powell said.
