Smaller U.S. Banks Say the Crisis Is Contained, but Fears Persist

The white-collar remote work revolution may permanently reshape the office market, bankers said. “Office is going to be really challenged for quite a few years, and it has a lot to do with remote work,” said Michael Morris, the chief credit officer at Zions Bancorporation, with headquarters in Salt Lake City. The bank increased its allowance for credit losses more than 30 percent in the first quarter versus last year.

Cleveland-based KeyBank, one of the nation’s largest commercial real estate servicers, has seen what Christopher Gorman, the bank’s chief executive, described as a “huge surge” in demand for special servicing, the process for handling troubled loans. Office projects have recently eclipsed retail buildings as the biggest category of loans in special servicing, Mr. Gorman said.

A credit crunch could tip the economy into recession, hurting banks’ profits.

Banks are tightening their lending standards, though they have cast the changes as tweaks, not a major pullback.

“We try to be the same through good times and bad, right, because what our clients value is consistency,” said Darren J. King, the chief financial officer at M&T Bank, with headquarters in Buffalo.

Still, echoing the warnings that big bank leaders have been issuing, smaller banks are bracing for a downturn. Bruce Van Saun, the chief executive of Citizens Financial Group, based in Providence, R.I., said his bank was adjusting its lending decisions to account for the likelihood of “a short, shallow recession.” Truist, the nation’s seventh-largest bank, with headquarters in Charlotte, N.C., said it was being more cautious about extending credit in what Michael Maguire, the bank’s chief financial officer, called “an increasing risk environment.”