Commercial property weighs on banks: Fed official

WASHINGTON Mon Nov 30, 2009 3:25pm EST

The store front that was once a Mattress Discounters store is empty and available for lease during ''Black Friday'' shopping day in the Back Bay neighborhood of Boston, Massachusetts November 28, 2008. REUTERS/Brian Snyder

The store front that was once a Mattress Discounters store is empty and available for lease during ''Black Friday'' shopping day in the Back Bay neighborhood of Boston, Massachusetts November 28, 2008.

Credit: Reuters/Brian Snyder

WASHINGTON (Reuters) - U.S. banks continue to face significant challenges, particularly from rising delinquencies in commercial real estate and commercial loans, a Federal Reserve official said on Monday.

"Credit losses at banking organizations continue to rise, and banks face risks of sizable additional credit losses given the outlook for production and employment," said Jon Greenlee, associate director of the division of bank supervision and regulation.

Loan quality has deteriorated across many asset classes, he said, speaking before a House of Representatives Financial Services subcommittee hearing in Southfield, Michigan. A text of his testimony was made available in Washington.

Even as banks set aside funds to cover loan losses, poor loan quality, subpar earnings, and uncertainty about future conditions have raised questions about capital adequacy at some institutions, Greenlee said.

The level of delinquent commercial real estate loans in bank portfolios had almost doubled at the end of June, he said.

The Fed's Term-Asset Backed Securities Loan facility helped the first issuance of commercial mortgage backed securities backed by newly originated mortgages in almost 18 months November 16, Greenlee said.

(Reporting by Mark Felsenthal; Editing by Leslie Adler)

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