Commercial Real Estate Loans Still Hot Topic on Feds Radar
Federal regulators continue to express concern over the heavy load of commercial real estate loans that many banks are carrying, particularly small and mid-size banks. Regulators are tightening standards for commercial real estate lending and lenders are fighting them, particularly smaller banks that see real estate as one of their best chances to compete effectively with huge, national lenders. Commercial real estate loans have been supporting community banks, which have been losing traditional business to big institutions in the past.
One primary complaint amongst banks is that the new concentration formulas recommended by federal regulators mixes lower-risk loans for housing with higher-risk speculative office or retail developments. Many believe that federal regulators should delay on further guidelines and perform a study.
However, some points are concerning. For example, AM Best notes that more than 60% of banks in California had lending concentrations above the 300% threshold, some with commercial loans at more than 1,000% of capital.