CRE Lending in Spotlight Again
Full Court Press on CRE Lending. All the federal banking agencies ended 2015 by joining the OCC in reinforcing the message that commercial real estate (CRE) lending requires increased monitoring and greater prudence by both bank boards and bank examiners.
In a joint statement released on December 18, 2015, the Fed, FDIC and OCC reinforced the need for prudent risk-management practices related to commercial real estate lending. The agencies stated that the CRE markets are experiencing substantial growth and that many institutions’ CRE concentration levels are rising. They also noted an easing of CRE underwriting standards and certain risk management practices that are cause for concern at some institutions.
In response to these trends, the agencies noted and endorsed in their release some of the practices of institutions that have succeeded during difficult economic cycles. Among the ten actions listed by the agencies in this regard are the recommendations that all banks provide their boards and management with sufficient and timely information to assess whether their lending strategy and policies continue to be appropriate in light of changes in market conditions, and maintain management information systems that provide the board and management with sufficient information to identify, measure, monitor, and manage concentration risk. In addition, as a reminder, the agencies attached to their release a listing of all of the regulations and guidance promulgated by each of the agencies related to commercial real estate lending.
Finally, the agencies concluded with a clear statement of their supervisory expectations for 2016. In particular, they said that their examiners will be paying special attention to potential risks associated with CRE lending. The agencies will focus on institutions that have recently experienced (or whose lending strategy plans for) substantial growth in CRE lending or that operate in markets or loan segments with increasing growth or risk fundamentals. A copy of the joint release of the agencies is available here: http://www.occ.treas.gov/news-issuances/news-releases/2015/nr-ia-2015-163.html.