FDIC Red Cards Regional Banks

The Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve, and the Office of Thrift Supervision are beginning to address this with a jointly issued interagency guidance on risk management of commercial real estate lending.

Bank Lending Ratios Raise Red Flags

The FDIC monitors two ratios on a quarterly basis:

The CD loans ratio is a measure of construction lending vs. total risk-based capital; when this ratio exceeds 100% it's a bad sign.

The CRE loans ratio is a measure of the total of construction, multifamily and commercial real estate lending vs. total risk-based capital; the danger threshold is when this ratio exceeds 300%.

Current ratios are very high -- the leverage has ballooned recent earnings, but now that fee income is drying up and there is a higher risk of loan defaults, the FDIC is increasing its vigilance.

According to an A.M. Best Co. review of FDIC data from Dec. 31, 22.1% of the 8,832 FDIC-insured financial institutions had a CD loans ratio over 100%, and 29.4% had CRE loan ratios over the 300% threshold. (FYI: Owner-occupied properties are excluded from the definition of commercial real estate. The FDIC compiles this data on a quarterly basis, and first-quarter data will not be finalized until late May.)