Atlanta Fed Informs Constituents with ViewPoint Live
In recent years, the Atlanta Fed Supervision and Regulation (S&R) department has increased its efforts to inform the banking industry and general public about supervisors' expectations and industry issues.
The 2010 launch of "ViewPoint," the department's quarterly publication on banking conditions and trends, was a major part of that effort. Last year, the department took another step with a live webcast, ViewPoint Live, to accompany the quarterly publication. During the October 7 installment of ViewPoint Live, S&R Executive Vice President Mike Johnson said many of the risks often considered emerging—such as cybersecurity and consumer compliance concerns—are already evident.
Supervisory officials discuss risks, interest rate environment
However, commercial real estate right now could be a truly emerging area of risk, Johnson pointed out during the webcast. To be clear, he did not say commercial real estate lending has already become troublesome, as it did preceding the financial crisis. Rather, the point is that commercial real estate lending is a heavy and growing focus of lending, especially among Sixth District banks with $1 billion to $5 billion in assets, Johnson told 400 registered viewers.
"It's a positive story overall, but we do have to keep a close eye on underwriting standards," Johnson said.
Banks generally appear to be lending prudently on real estate. It's important to note that market dynamics and risk factors differ across commercial real estate sectors—multifamily, office, and retail—and geographic markets, Johnson noted. For example, the pace of apartment construction in Miami, Orlando, and Nashville is above its 15-year average and back to where it was before the financial crisis. Much of that construction is financed by loans from banks.
Also during the webcast, Dean Anderson, a senior technical expert in the Atlanta Fed S&R department, discussed how banks' net interest margins might react to higher prevailing interest rates. Net interest margin is basically the difference between what banks pay on deposits and earn on loans. S&R's models show that 55 to 60 percent of banks in the District will likely benefit if short-term rates begin to rise, and those that don't benefit probably won't be hurt much, Anderson said.