Feds React to Rising Bank CRE Lending

Rapid growth of commercial real estate lending at small and midsize banks over the past few years is prompting federal regulators to issue new guidance to examiners and bank executives.David Wright, associate director of the Federal Reserve Board, said regulators are drafting guidance on CRE lending that focuses on concentrations -- particularly institutions with construction-and-development loans in excess of 100% of Tier One capital and non-owner-occupied CRE loans in excess of 300% of Tier One capital. "We are much more concerned with risk related to non-owner-occupied exposure than owner-occupied," Mr. Wright told a Risk Management Association conference. The regulators expect these banks to stress-test their CRE portfolios and stratify the loans by occupant and property type. They also want senior management and the board of directors to formally acknowledge that the bank's CRE exposure is "becoming a primary risk of the organization" and the board approves of the bank's direction.