Commercial Real Estate Lending and the State of the Banks
By Sam Chandan January 9, 2013 7:30 am
reprintsFor some larger banks, this year’s most serious challenges will result from their own staggering breaches of trust. The Libor scandal has been of large banks’ own making, and it hints at systematic failures in accountability that policymakers may prove eager to address. Well in excess of $1 billion in fines has deservedly been levied against high-profile international institutions thus far. Some banks have cut bonuses and bolstered reserves in anticipation of sanctions that will rival the residential foreclosure abuse settlement.
Renewed calls for active regulation—both abroad and in the Senate’s reconstituted and re-energized Banking Committee—may well lead to much higher long-term costs for financial intermediaries large and small. This year will see the Consumer Financial Protection Bureau come to life as it moves from last year’s study phase to active engagement. Well-funded, and with a broad mandate to interpret its protective function, its implications for the banking sector loom large.
The potential for seismic shifts in 2013 will play out alongside other cyclical and secular changes, ranging from a new Consumer Complaints Database to the anticipated expiry of unlimited insurance coverage. Against a backdrop of modest economics and large financial institutions’ tarnished public perceptions, the adoption of consumer technologies that obviate visits to the teller and may erode the value of incumbent payment networks will become increasingly relevant. For small and large banks, interest rate risks assumed in an environment of artificially low rates and pressure on net interest margins will only begin coming into focus. Beginning the new year on sounder footing, banks will have to work hard to keep their balance.
Sam Chandan, Ph.D., is president and chief economist of Chandan Economics and an adjunct professor at the Wharton School. The views expressed here are his own. He can be reached at dsc@chandan.com.
