Banks with commercial real estate (CRE) concentrations should have strong capital, appropriate credit loss allowance levels, and robust credit risk-management practices, the federal bank deposit insurance agency said Monday in a letter to all banks.
In an advisory (as a financial institution letter (FIL), the Federal Deposit Insurance Corp. (FDIC) said its communication also conveys key risk management practices for institutions to consider in managing CRE loan concentrations in today’s economic environment.
Among those:
• Maintain strong capital levels;
• Ensure that credit loss allowances are appropriate;
• Manage construction and development (C&D) and CRE loan portfolios closely;
• Maintain updated financial and analytical information;
• Bolster the loan workout infrastructure; and
• Maintain adequate liquidity and diverse funding sources.
Additionally, the advisory reemphasizes the importance of effectively managing liquidity and funding risks, which can compound lending risks, particularly for CRE-concentrated institutions., the FDIC said.
Advisory: Managing Commercial Real Estate Concentrations in a Challenging Economic Environment
Advisory: Managing Commercial Real Estate Concentrations in a Challenging Economic Environment