NEW YORK ( TheStreet) -- The Federal Deposit Insurance Corporation produces a Quarterly Banking Profile (QBP) approximately two months after the end of each quarter. I have been dissecting the information and data presented in these reports since early 2006 when I first predicted that community and regional banks would fall like dominoes as the housing bubble popped.
My analysis of the housing market began in the second quarter of 2005 when I predicted the housing bubble and in May of that year advised investors to sell their homebuilder stocks. These stocks peaked in June/July of 2005 a full year before the peak in home prices.
As the air began to seep out of the housing bubble I turned my attention to the community and regional banks, which had been benefiting from the financing of community development through the issuance of construction and development loans, and nonfarm-nonresidential real estate loans. On the consumer side the larger money center banks and regional banks, including the four considered 'too-big-to-fail,' were focusing on issuing mortgages of all shapes and sizes and were coaxing homeowners to leverage the increasing home values with home equity lines of credit.
In the fall of 2005, the
and the FDIC realized that community banks were loaning funds to the housing and real estate markets at a pace above what these regulators thought as prudent. Guidelines were set and monitored via quarterly filings to the FDIC. These guidelines were formalized by the end of 2006, and included the following stipulations:
Overexposure to construction and development loans
The first guideline states that if loans for construction, land development, and other land are 100% or more of total risk capital, the institution is considered to have loans concentrations above prudent risk levels, and should have heightened risk management practices.
Overexposure to construction and development loans including loans secured by multifamily and commercial properties
If loans for construction, land development, and other land, and loans secured by multifamily and commercial property are 300% or more of total risk capital, the institution would also be considered to have commercial real estate loans (CRE) concentrations above prudent levels, and should employ heightened risk management practices.