105. Rapid CRE Loan Growth at Smaller Banks Draws Scrutiny

Rapid CRE Loan Growth at Smaller Banks Draws Scrutiny



This episode of the Commercial Real Estate Daily podcast is brought to you by CRE Launch Pro. If you’re looking to take your investing skills to the next level with online courses, group coaching calls, and a community of other investors, head on over to www.CreLaunchPro.com


Episode Transcript:

Troubling signs are emerging that a number of midsized U.S. banks may be overexposed to risky commercial real estate debt, catching the watchful eye of federal regulators.

According to a new Bloomberg analysis, 22 banks with assets between $10 billion and $100 billion now carry commercial property loan portfolios exceeding 300% of their capital reserves. This dubious milestone, combined with rapidly accelerating CRE lending over just three years, has triggered heightened scrutiny thresholds outlined by the Federal Reserve, FDIC and OCC.

Specifically, half of those 22 midsize institutions turbocharged their CRE exposures by over 50% since 2020 alone, blowing past the velocity red flags raised by watchdogs. The list doesn't stop there either.

Among even smaller banks under $10 billion in assets, Bloomberg identified 47 overshooting that 300% CRE concentration danger zone. 13 of those ramped up lending at a pace demanding intensified monitoring and stress-testing as well.

With the commercial real estate landscape increasingly distressed, regulators are undoubtedly laser-focused on these concentrated bets across the banking sector's books. While exceeding certain metrics doesn't necessarily seal any lender's fate, it will sharpen regulatory glares.

This scrutiny punctuates persistent fears that office, retail and multifamily debt could trigger the next systemic banking crisis. It was just months ago the implosion of Signature Bank exposed how rapidly soured CRE loans can detonate.

The fallout from New York Community Bank's disastrous earnings only exacerbated these concerns. Their outsized exposure to office and multifamily mortgages catalyzed staggering losses and financial whiplash recently.

While analysts like Morningstar suggest NYCB occupies a "uniquely risky position," other regional giants like Zions and M&T Bank harbor notable CRE exposures relative to capital buffers too.

As Treasury Secretary Yellen and Fed Chair Powell affirm, regulators are bracing for further CRE distress. But they insist the real estate storm clouds aren't foreshadowing an imminent systemic banking calamity - at least not yet.

This is Tyler Cauble, Signing off