Some small banks in the United States could either close or merge in the future as the country grapples with weakness in the commercial property market.
Federal Reserve Chair Jerome Powell made the grim prediction during a "60 Minutes" interview that aired Sunday night. However, he said he believes the problem in the commercial real estate market is "manageable," adding that he does not expect another banking crisis to happen.
"You have weakness in office real estate, and also retail, downtown retail... And there will be losses in that, [but it] doesn't appear to have the makings of the kind of crisis things that we've seen sometimes in the past, for example, with the global financial crisis," Powell said, referring to a 2008 financial crisis that took down hundreds of banks across the country.
"There's some smaller and regional banks that have concentrated exposures in these areas that are challenged. And, you know, we're working with them. This is something we've been aware of for, you know, a long time, and we're working with them to make sure that they have the resources and a plan to work their way through the expected losses," he added.
During the interview, Powell also highlighted the declining inflation rate, the country's strong economic growth, and continued resiliency in the labor market.
"The economy's strong. The labor market's strong. Inflation's coming down. We don't have a perfect crystal ball about the future, and things could happen. But I do think the economy is in a good place, and there's every reason to think it can get better," he continued.
However, Powell noted that the Federal Open Market Committee would likely need more data to feel confident about cutting interest rates, which will help lower mortgage rates.
How Are Banks Faring Amid the Commercial Real Estate Crisis?
Last Wednesday, commercial real estate lender New York Community Bancorp, which is worth $116 billion, slashed its dividends and reported a surprising quarterly net loss of $252 million. The bank also stockpiled millions for future loan losses related to its commercial real estate holdings, per Yahoo Finance.
Following its announcement, the stock of New York Community Bancorp fell by 38% on Wednesday, marking the largest one-day percentage drop in the stock's history. The company's stock fell a further 11% on Thursday and more than 10% on Monday.
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