US banking system 'well-capitalized' despite risks: Yellen

WASHINGTON

U.S. Treasury Secretary Janet Yellen has said that the country's banking system is "well-capitalized" even as some banks face stresses stemming from the commercial real estate sector.

Yellen made the comments to a congressional hearing, where she added that regulators are monitoring risks from nonbank mortgage lenders and authorities plan to tighten oversight on investment advisers.

Earlier this week, Yellen expressed concern about the commercial property sector, saying banking supervisors are working with institutions to manage challenges.

The concern is that as commercial real estate loans come due, they will have to be refinanced in an environment of higher interest charges, lower valuations and where vacancy rates are growing - adding pressure on the system.

Vacancy rates in office buildings, especially in metropolitan areas, have surged, Yellen told the Senate Committee on Banking, Housing, and Urban Affairs on Feb. 8.

"There are some risks, and there are some institutions that will face stresses from commercial real estate," she said.

"For some banks, this will be a concern. But on balance I'd say the system is well-capitalized," she added.

At the hearing, Yellen also said regulators are eyeing risks related to nonbank mortgage lenders.
"Nonbank mortgage companies lack access to deposits which banks have, they're reliant on short-term financing that may be a lot less stable than deposits," she said.

Yellen added that their credit lines can be pulled during times of stress and that they also lack access to the types of liquidity backstops that banks have.

"There is concern that in stressful market conditions, we could see the failure of one of these," she said.