Federal Reserve bank supervisors are monitoring the commercial real estate portfolios of community and regional banks amid concerns over "rising interest rates, stricter underwriting standards, and declining commercial property values," the agency said.

The central bank said these factors could impact borrowers' ability to refinance or repay their loans, according to a supervisory and regulatory report released Monday. Officials are monitoring commercial real estate lending trends in addition to closely reviewing underwriting practices and loan loss allowance levels.

Among Wall Street lenders, the agency's supervisors are monitoring weaknesses in capital planning and liquidity risk management practices among those lenders. However, the Fed report found that most banks continued to report capital levels well above applicable regulatory requirements in the second quarter.

"The stress test results indicate that large banks are well-positioned to weather a severe recession while maintaining minimum capital requirements and the ability to lend to households and businesses," the report said.

This focus area emerged after the Fed's Vice Chair for Supervision, Michelle Bowman, urged supervisors to shift their focus to material risks rather than being distracted by process-related matters that don't impact the safety and soundness of the company.

US regulators recently relaxed some capital requirements and finalized changes last month to their supervisory rating framework for large banks. (alg)

Source: Bloomberg