Many recent regulatory communications have highlighted increasing concern regarding CRE lending and concentrations. Most of the regulatory issuances have stressed historical standards and publications.
The joint agency publication “Statement on Prudent Risk Management for Commercial Real Estate Lending” issued during December 2015 reiterated several items from historical publications. The joint issuance is clear on increased expectations for banks with higher CRE concentrations:
During 2016, supervisors from the banking agencies will continue to pay special attention to potential risks associated with CRE lending. When conducting examinations that include a review of CRE lending activities, the agencies will focus on financial institutions’ implementation of the prudent principles in the Concentration Guidance as well as other applicable guidance relative to identifying, measuring, monitoring, and managing concentration risk in CRE lending activities. In particular, the agencies will focus on those financial institutions that have recently experienced, or whose lending strategy plans for, substantial growth in CRE lending activity, or that operate in markets or loan segments with increasing growth or risk fundamentals. The agencies may ask financial institutions found to have inadequate risk management practices and capital strategies to develop a plan to identify, measure, monitor, and manage CRE concentrations, to reduce risk tolerances in their underwriting standards, or to raise additional capital to mitigate the risk associated with their CRE strategies or exposures.
SOURCE: https://fdic.gov/news/news/press/2015/pr15100a.pdf
The joint agency publication “Statement on Prudent Risk Management for Commercial Real Estate Lending” issued during December 2015 reiterated several items from historical publications. The joint issuance is clear on increased expectations for banks with higher CRE concentrations:
During 2016, supervisors from the banking agencies will continue to pay special attention to potential risks associated with CRE lending. When conducting examinations that include a review of CRE lending activities, the agencies will focus on financial institutions’ implementation of the prudent principles in the Concentration Guidance as well as other applicable guidance relative to identifying, measuring, monitoring, and managing concentration risk in CRE lending activities. In particular, the agencies will focus on those financial institutions that have recently experienced, or whose lending strategy plans for, substantial growth in CRE lending activity, or that operate in markets or loan segments with increasing growth or risk fundamentals. The agencies may ask financial institutions found to have inadequate risk management practices and capital strategies to develop a plan to identify, measure, monitor, and manage CRE concentrations, to reduce risk tolerances in their underwriting standards, or to raise additional capital to mitigate the risk associated with their CRE strategies or exposures.
SOURCE: https://fdic.gov/news/news/press/2015/pr15100a.pdf
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