The sharp growth in commercial real estate lending at U.S. banks (especially construction and land development loans) and increased reliance on noncore funding sources pose heightened risks to the banking industry, according to a report by A.M. Best Co., Oldwick, N.J.The weakening consumer credit market has prompted banks to boost commercial real estate lending to offset the slowdown, the report says. The banking industry's assets grew twice as fast as deposits (based on third-quarter 2006 regulatory data), while CRE loans grew three times as fast and C&D loans grew more than five times as fast, according to A.M. Best. "As of the end of the third quarter, CRE stood at a record 14.2% of total assets, which makes these trends particularly distressing," the company said. A.M. Best can be found online at http://www.ambest.com.

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