US Financial System Facing Five-Year High Delinquency Rates on Loans - Federal Reserve

WASHINGTON (Sputnik) - The financial system of the United States is experiencing five-year high delinquency rates among commercial real estate loans and an increase in credit card and auto loan delinquencies, Michael Barr, the Vice Chair of the Federal Reserve for Supervision, has said in a House committee hearing.

"For example, delinquency rates are rising among certain commercial real estate (CRE) loans, such as those backed by offices, and some consumer loan sectors. CRE delinquencies are now at a five-year high. Credit card and auto loan delinquencies have been rising," Barr said on Tuesday.

Banks have increased loan loss provisions in response to rising delinquencies, he said, adding that "the banking sector as a whole should be prepared to absorb loan losses that may materialize and continue fulfilling its vital role providing credit to households and businesses."

US authorities also plan to enhance capital requirements of financial organizations to improve their protection due to the risks of stress scenarios in the economy, Barr said.

"A safe and sound banking system is critical to a healthy economy, and capital is foundational to safety and soundness. Well-capitalized banks have more capacity to support the economy by continuing to lend to households and businesses through stressful conditions ... This brings me to the agencies' proposal to enhance capital requirements," he said.

He further said that a "well-capitalized banking system reduces the probability that stressful conditions result in financial crises," adding that "strong capital also reduces the risk that the government would need to intervene in unusual and exigent circumstances."

The US Federal Reserve for Supervision has already received numerous and meaningful comments on the proposal to enhance capital requirements, Barr said, adding that this information is being closely analyzed to reach "a broad consensus in moving the proposal forward."