While many would think that severe commercial losses might threaten the security and stability of lenders, according to one Federal Reserve official, “losses in the commercial real estate industry do not pose a threat to large banks”[1]. Patrick Parkinson, the Fed’s director of the division of banking supervision and regulation, said in prepared testimony yesterday that “while problems in the commercial real estate market will be an ongoing concern for a number of banking organizations and a negative factor for economic growth and lending, we do not see commercial real estate losses as a threat to systemically important financial institutions.”

Parkinson’s testimony was part of a hearing before the TARP oversight panel in congress designed to analyze the role of the commercial real estate market in bank stability. David Wilson, deputy comptroller for credit and market risk at the Office of the Comptroller of the Currency, did point out that “there are a number of severely distressed community banks that probably won’t make it.” However, “it appears that worst-case scenarios [such as the failure of lenders and banks considered “too big to fail”] are becoming increasingly unlikely,” Parkinson told the panel, adding that according to his numbers, banks have already taken nearly half of the losses that they will incur over this business cycle[2].

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[1] http://blogs.abcnews.com/thenote/2011/02/fed-official-losses-in-commercial-loans-dont-pose-threat-to-big-banks.html

[2] http://www.reuters.com/article/2011/02/04/financial-cre-idUKN0419111820110204