FDIC promises more scrutiny of banks' commercial real estate loans

Abstract

The Federal Deposit Insurance Corp. plans to increase its scrutiny of banks' exposure to commercial real estate loans, citing uncertainty about the future of work and commerce in the wake of the COVID-19 pandemic. At the end of last year, FDIC-supervised banks held about 41% of the $2.7 trillion in commercial real estate loans held by banks. In response, Chief Banking Officer Michael Selfridge said that First Republic has become more cautious, though he also noted that the bank is not in the business of lending on large high-rise buildings where occupancy rates have suffered. Commercial banking M&T warns on commercial exposure, gives thumbs-up on consumer loans The Buffalo, New York, bank flagged urban hotels and construction projects as potential sources of trouble. "That's been a topic for decades - sometimes rightly so."Commercial real estate loans were the main source of problems for roughly 80% of the 400-plus banks that failed in and around the Great Recession, Anderson said. Delinquency rates on bank loans for lodging peaked at 10.5% last year and have since fallen to 7.5%, according to Trepp's TALLR database. Delinquency rates on bank loans for retail space peaked at 3.4% in late 2020 and have since dropped to 1.7%.Meanwhile, delinquency rates on bank loans for office space have been climbing steadily - from 0.2% in the fourth quarter of 2019 to 1.8% in the first quarter of this year.