The Financial Services Authority (FSA) has warned that banks may not be setting aside enough money to cover their losses in the commercial
property investment sector, possibly leading to a meltdown.
In its latest Financial Risk Outlook, the FSA said that around £160 billion of commercial property debt is due to mature over the next five years, while banks may decide not to renew some of their
commercial loans when they expire.
"This could force liquidations and release commercial properties onto the market, possibly triggering further price falls," said the FSA in the report.
"Leveraged loans to UK companies that were subject to buy-outs also face a maturity 'hump' and present similar refinancing challenges to the banks in this sector."
Earlier this month, the FSA introduced a new framework for financial penalty-setting, with fine linked more closely to income to support the organisation's policy of commitment to the principle of credible deterrence.
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