Wednesday, October 7, 2009

Commercial Real Estate Risk to Banks

Senior real estate analyst at the Federal Reserve Bank of Atlanta K. C. Conway's report to banking regulators on September 29 predicted that commercial real-estate losses would reach roughly 45 percent next year, with the most damaging loans being interest only loans. These loans require debtors to pay only the interest, leaving the principle amount unchanged. The report suggested that regulators were preparing for a rerun of housing-related losses that plagued many banks after the residential property bubble burst. Banks have been slow to absorb the losses on their loans, partly due to capital preservation concerns.
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