Business

Real estate loans threaten US banks
by Zuzana Zelenakova

Commercial real estate loans currently represent the biggest problem for US banks as regulators warned Wednesday. Since the beginning of the financial crisis the stability of banking system has risen, however, it is not firm enough still. Smaller, community banks are most vulnerable to the threats of commercial real estate loans. With millions of jobs lost in recession many office spaces have remained deserted and developers have failed to fulfill their engagements regarding the loans. In the past two years banks lost about six billion dollars due to commercial loans and the sum is expected to grow quickly in near future. The Federal Reserve and other regulators are trying! to help the troubled banks by issuing guidelines according to which banks should modify the real estate loans. As Federal Reserve Gov. Daniel Tarullo said “it is often in the best interest of both the financial institution and the borrower”. When it comes to small banks senators would like to grant them a bigger portion from the $700 billion financial bailout program. So far ninety-eight US banks broke down, many of them crumbled beneath the weight of troubled real estate loans. The Federal Deposit Insurance Corporation´s list of problem banks has reached number 416 by the end of June, which is the highest since 1994. In the first quarter it was only 305. “There will be more failures,” testified FDIC Chairman Sheila Bair. “It will continue at a pretty good pace this year and next. We are ready for this.” In the next couple of years about 400 banks are expected to follow. “Our current outlook is that this downturn for commerci! al real estate will be worse than in the early 1990s,” s! ays Matt Anderson from Calif.-based research firm Foresight Analytics. It is certainly not a pretty picture and it seems for smaller banks to be particularly bleak.

related story (sgx15631): http://news.yahoo.com/s/ap/20091014/ap_on_bi_ge/us_banks_reg...

by Zuzana Zelenakova for PocketNews (http://pocketnews.tv)

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posted by Blog TechSource @ 1:08 PM