Federal regulators have noticed a "modest uptick" in noncurrent construction and development loans, and banks with rapidly growing C&D portfolios need to be careful, according to Sheila Bair, chairman of the Federal Deposit Insurance Corp..C&D lending at banks has been growing at a 30% annual rate over the past two years and regulators generally expect to see "more significant problems" arise as housing markets soften, she told a California Bank Presidents meeting. However, the recently issued commercial real estate guidance should not be "interpreted as supporting a reduction in current volume," Ms. Bair said, so long as loans are prudently underwritten and risk management practices keep up with increasing concentrations. "But we also do not intend to back away from the expectations we have always placed on institutions with rapid growth and high concentrations in this sometimes-volatile line of business," the FDIC chairman said. "To the extent that an institution is already following best practice in this regard, it has nothing to worry about."

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