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Fed Will Stress Test Banks Against Big Commercial Real Estate Declines
By Ted Jackson
As part of its annual examination of the capital strength of the nation’s banking system, the Federal Reserve says it will stress test the balance sheets of 34 of the nation’s largest banks against a steep decline in the commercial real estate market.
As part of the theoretical recession the stress tests are based on, the Fed said its stress test model will envision a decline of 40% in commercial real estate prices over the next two years. As part of the exercise, the Fed will also test against unemployment rising to 10% from 4% currently as well as a sharp decline of 3.5% in GDP, among other things.
According to Real Capital Analytics, sales of commercial real estate property rose last year to $809 billion from $600 billion in 2019, while, based on the Green Street Commercial Property Index, 2021 commercial real estate prices were up 18% over the same period.
- ◦Economy
- ◦Policy/Gov't
