Feds Want More Emphasis on CRE Risk Management.(Commercial real estate)

Washington -- Federal regulators are warning banks and thrifts with high concentrations of commercial real estate loans to increase their risk management practices and to make sure they are holding enough capital.

The regulatory guidance issued last week is in response to concerns that hundreds of small and midsized banks are accumulating large portfolios of CRE loans.

Even though CRE markets have improved over the past few years and appear to be very healthy, the Federal Reserve Board and other regulators want to see some discipline now. They can still remember a severe downturn in the CRE markets (1989-92) that led to the failure of many large banks and savings associations.

"Currently, lenders are operating in a relatively benign commercial real estate environment," Fed governor Susan Bies said. "However, given the historical cyclicality of commercial real estate markets, supervisors expect to see lenders with high and increasing concentrations in this area focus more intently on managing their risks."

The guidance establishes thresholds for determining when a lender has a high concentration of construction and commercial property loans. The regulators estimate 1,700 to 2,000 banks have CRE exposures that exceed the thresholds.

The guidance also reminds bankers that they may need to maintain capital at levels well above minimum requirements, "depending upon the level and nature of the CRE concentration."

America's Community Bankers executive president Robert Davis expressed concern that the thresholds could be viewed as limits and inhibit CRE lending. He also is concerned that the statements on capital are "vague" and provide little guidance to examiners or bankers.