Federal regulators want banks and thrifts with high concentrations of commercial real estate loans to use "heightened" risk management practices and to recognize the need for additional capital, according to newly issued regulatory guidance.Regulatory officials have been warning about small and midsize institutions that have steadily expanded their CRE portfolios over the past few years. However, America's Community Bankers is concerned that the guidance will "inhibit" CRE lending and force institutions to maintain higher capital levels. The guidance establishes thresholds for determining when a lender has a high concentration. Concentrations of land acquisition, development, and construction (including one- to four-family construction) loans that represent 100% of capital are considered high and warrant heightened risk management practices. ADC loans, along with multifamily and commercial property loans, that amount to 300% of capital are considered a high concentration, according to the guidance, which is being issued for a 60-day comment period. Federal Deposit Insurance Corp. data show that 35% of federally insured banks and thrifts have CRE exposures that exceed 400% of capital. The regulators decided to exclude CRE loans secured by owner-occupied properties from the threshold test "because their risk profiles are less influenced by the condition of the general CRE market."
