Yellen, US Treasury Secretary: "Bank merger news expected within the year... Commercial real estate risk manageable"

Declining Profitability of Small and Medium Banks
Commercial Real Estate Issues Won't Lead to a Systemic Crisis

U.S. Treasury Secretary Janet Yellen stated on the 23rd (local time) that there will be additional mergers and acquisitions among U.S. banks this year. She emphasized that the commercial real estate issue is at a manageable level.

In an interview with The Wall Street Journal (WSJ) on the same day, Secretary Yellen diagnosed that high interest rates and the regional bank collapse in March could lead to deteriorating profitability for small and medium-sized banks. She said that the worsening earnings of banks in the second quarter would put downward pressure on stock prices and added, "While it may not pose a major threat to the banking sector, there will ultimately be banks that want to merge."

WSJ analyzed that these remarks are a clear signal that the U.S. government is preparing for a recurrence of turmoil in the banking sector.

Regarding criticism that the acquisition of First Republic Bank by JP Morgan Chase, the largest U.S. bank, in May was "just fattening up the big banks," Secretary Yellen responded, "The U.S. has more banks than almost any other country I know," and evaluated that mergers between banks can contribute to enhancing soundness.

She also expressed confidence that the commercial real estate problem will not escalate into a systemic crisis. Secretary Yellen noted that the commercial real estate loan risk, concentrated in small banks, is spreading to the office market, and while additional bank failures may occur, she expects it will not trigger a widespread banking crisis. She said, "There will be some issues, but I think they will be manageable," and added, "I do not think it will become a systemic problem."

[Image source=Yonhap News]

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