Authors: Matteo Crosignani and Saketh Prazad
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Staff Reports
Extend-and-Pretend in the U.S. CRE Market
Number 1130
October 2024
October 2024
JEL classification: G21, E51, R33
We show that banks “extended-and-pretended” their impaired CRE mortgages in the post-pandemic period to avoid writing off their capital, leading to credit misallocation and a buildup of financial fragility. We detect this behavior using loan-level supervisory data on maturity extensions, bank assessment of credit risk, and realized defaults for loans to property owners and REITs. Extend-and-pretend crowds out new credit provision, leading to a 4.8–5.3 percent drop in CRE mortgage origination since 2022:Q1 and fuels the amount of CRE mortgages maturing in the near term. As of 2023:Q4, this “maturity wall” represents 27 percent of bank capital.
Author Disclosure Statement(s)
Matteo Crosignani
I declare that I have no relevant or material financial interests that relate to the research described in the paper titled “Extend-and-Pretend” – Banks and Distressed CRE.
Saketh Prazad
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
I declare that I have no relevant or material financial interests that relate to the research described in the paper titled “Extend-and-Pretend” – Banks and Distressed CRE.
Saketh Prazad
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Suggested Citation:
Crosignani, Matteo, and Saketh Prazad. 2024. ” Federal Reserve Bank of New York Staff Reports, no. 1130, October. https://doi.org/10.59576/sr.1130
Crosignani, Matteo, and Saketh Prazad. 2024. ” Federal Reserve Bank of New York Staff Reports, no. 1130, October. https://doi.org/10.59576/sr.1130
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