On Tuesday, U.S. Treasury Secretary Janet Yellen voiced apprehension regarding the commercial real estate sector amid the backdrop of elevated interest rates. However, she also noted that the broader situation should be "manageable."
Speaking before the House Financial Services Committee, Yellen noted that banking supervisors are looking to help institutions manage these conditions.
She added that the Financial Stability Oversight Council (FSOC) – bringing together financial and state regulators – is focused on the sector.
For now, interest rates stand at an elevated level while property owners are also grappling with work pattern shifts in the aftermath of the COVID-19 pandemic, with more office workers operating remotely.
As commercial real estate loans come due, they will need to be "refinanced in a context where vacancy rates in some cities are quite high," Yellen said in testimony.
"It's going to put a lot of stress on the owners of these properties," she added.
But she said: "I believe it's manageable, although there may be some institutions that are quite stressed by this problem."
Banking supervisors are working closely with institutions they oversee to manage and collaborate with borrowers facing problems, Yellen said.
For example, they are looking to ensure loan loss reserves are sufficient, and that liquidity is adequate.
In testifying on the FSOC's annual report, Yellen also stressed that Congress should pass legislation to allow for the regulation of stablecoins.
These are a type of cryptocurrency designed to have a relatively fixed price, and are usually pegged to a real-world commodity or currency.
"FSOC believes that it's critical for there to be a federal regulatory floor that would apply to all states," Yellen said.
A federal regulator should also have the "ability to decide if a stablecoin issuer should be barred from issuing such an asset," she added.
