Federal Reserve supervisors are examining the vulnerability of medium-sized lenders to falling commercial real-estate values to gauge the size of potential losses across the banking system.
The Fed is focusing on banks smaller than the 19 largest lenders examined in detail in May, a central bank official said on condition of anonymity. The process involves gathering data from individual banks and comparing it to their peers, an approach known internally as a 'horizontal review.'
Policy makers need to estimate the timing for a revival in bank lending when deciding when to withdraw emergency credit programs and record monetary stimulus. While the Fed has pumped billions of dollars of liquidity into financial institutions, total bank credit to the economy grew just 2% in August compared with the same month last year, according to Fed data.