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Commercial Real Estate Exposure and Bank Stock Returns
An analysis suggests that commercial real estate exposures may have been a relevant driver of bank holding company stock returns in 2023.
Working Paper
Safe Collateral, Arm's-Length Credit : Evidence from the Commercial Real Estate Mortgage Market
When collateral is safe, there are less opportunities for things to go wrong. We examine matching between collateral and creditors in the commercial real estate mortgage market by comparing loans in commercial mortgage backed securities (CMBS) conduits and bank portfolios. We model CMBS financing as lower cost but less informed, such that only safe collateral is funded by CMBS. This prediction is tested using the 2007-2009 shutdown of the CMBS market as a natural experiment. The loans funded by banks that would have been securitized are less likely to default or be renegotiated, indicating ...
Journal Article
“Stress Testing” Banks on Commercial Real Estate
Recent research tests the effects of a large (hypothetical) drop in commercial real estate prices: Banks most affected would be small and the resulting noncompliance would apply to a small fraction of assets in the US banking system.
Discussion Paper
Is Your Apartment Breaking because Your Landlord Is Broke?
Thirty-one percent of housing units in the United States are rental units, and rental housing is unique because unlike in the case of homeownership, renters rely on the property owner for maintenance spending. From the property owner’s perspective, building maintenance is an important investment necessary to keep the asset in good condition. However, like all investments, it is only possible to maintain a building with sufficient financial resources. In a recent staff report, I examine the relationship between a building’s financing constraints and its maintenance. I find that financially ...
Speech
Economic Fragility: Implications for Recovery from the Pandemic
Clearly a deadly pandemic was bound to badly impact the economy. However, I am sorry to say that the slow build-up of risk in the low-interest-rate environment that preceded the current recession likely will make the economic recovery from the pandemic more difficult.
Briefing
Understanding the Surge in Commercial Real Estate Lending
U.S. banks have increased their commercial real estate (CRE) lending significantly in the past five years. Economists and regulators note that some positive factors are driving this trend, but they also see potential risks. Analysts at the Richmond Fed have found that some banks could be especially vulnerable if economic conditions deteriorate. These include institutions that are in certain major urban areas and have high concentrations of CRE loans, rapid CRE loan growth, and heavy reliance on "noncore" (or illiquid) funding. But the analysts also conclude that, overall, banks' CRE exposures ...
Journal Article
Out of the Office, Into a Financial Crisis?
For decades, the office has offered an alternative to the manual labor that defined work for most of human history. But it came with its own set of headaches for workers.Those headaches have provided fuel for movies like Office Space and The Devil Wears Prada and TV shows like Severance and The Office. The COVID-19 pandemic gave many Americans the chance to live out their dreams of escaping their commutes and the annoyances of the modern workplace. In the initial months of the pandemic in 2020, most offices shut down. More than 60 percent of all paid full days were worked from home.
Commercial Real Estate Market Stress Poses a Challenge to Banks
Remote work, higher interest rates and other factors have made commercial real estate lending more challenging for banks, particularly community banks.