U.S. Treasury Secretary Janet Yellen said on Thursday that the country's banking system is "well-capitalized" despite pressure from the commercial real estate sector on some banks.
Yellen made the remarks during a congressional hearing. She added that regulators are monitoring the risks of non-bank mortgage lenders and that the authorities plan to strengthen supervision of investment advisers.
Earlier this week, Yellen expressed concerns about the commercial real estate sector. Banking regulators are working with financial institutions to address the challenges, she said.
The concern is that as commercial real estate loans mature, they will have to be refinanced in an environment of rising interest rates, falling valuations, and rising vacancy rates, adding pressure to the system.
Yellen told the Senate Committee on Banking, Housing and Urban Affairs on Thursday that vacancy rates in office buildings have risen significantly, especially in metropolitan areas.
There are some risks that some institutions will face pressure from commercial real estate," she said.
For some banks, this will be a concern. But overall, I think the system is well-funded. ”
Yellen also said at the hearing that regulators are looking at the risks associated with non-bank mortgage lenders.
"Non-bank mortgage companies don't have access to bank-owned deposits, and they rely on short-term financing, which may be far less stable than deposits," she said. ”
Yellen added that their line of credit could be canceled in times of stress, and they also don't have access to the liquidity that banks have.
"There is a fear that in a tight market environment, we could see one of these projects fail," she said. ”
Yellen also noted Thursday that the Treasury Department plans to issue a proposed rule that would apply anti-money laundering and countering terrorist financing requirements to investment advisers.
"Investment advisory is a financial sector that has not yet been harmonized [by the AML/CFT] rules," Paulson said.
"Our risk assessment shows that this region provides a way for sanctioned individuals, criminals and the like to transfer their wealth and invest in the U.S. without their wealth** being discovered," she said. ”