The Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation issued today an interagency statement (Statement on Prudent Risk Management for Commercial Real Estate Lending) cautioning the banking industry on the need for prudent risk management practices with respect to commercial real estate (CRE) lending activities.
According to the agencies, the statement was prompted by substantial growth in the CRE lending and asset markets and a rise in CRE concentration levels at many banks, as well as the agencies’ concerns over the easing of CRE loan underwriting standards and the adequacy of CRE lending risk management practices at some banks.
The relatively brief statement reiterates the banking agencies’ supervisory expectations for CRE lending activities, with an emphasis on CRE concentration risk management, underwriting discipline, and prudent risk management practices in general. The statement also cautions that the agencies will be paying “special attention to potential risks associated with CRE lending” in 2016 and may require remedial measures at banks with inadequate CRE risk management practices.
Banking organizations should pay close attention to this statement and be prepared for a rigorous supervisory review of CRE lending activities and risk management cycles during their next safety and soundness examinations.