Summary
Commercial Real Estate loan losses pose a significant risk at FDIC insured institutions, according to Sheila Bair, Chair of the FDIC.
Commercial property loans are behind many of the 123 bank failures of the past two years.
Analysis
Commercial real estate loans pose the biggest risk to financial institutions acknowledged bank regulators in testimony before the Senate Banking Committee.
CRE loans totaled approximately $1.1 trillion, or 14% of all loans and leases as of June 2009.
The FDIC is developing guidance for CRE workouts. Bair, Chair of the FDIC stated that commercial real estate lending is "a significant examination focus right now".
John Dugan, Comptroller of the Treasury testified that a number of banks have recorded residential and commercial loan losses that will produce more bank failures.
Reatly Trac and Deutsche Bank estimate that 1 in 3 commercial loans are on the verge of default representing a serious threat to economic recovery. One million ARMS are scheduled to spike shortly.
Added to the estimate by D&B that business bankruptcies are on the mark to increase by 60% and personal bankruptcies have increased by 33%, and that many residential real estate loans owed by substantial borrowers - homes valued at more than $1 million are falling into foreclosure, the results could prove devastating to the financial industry and US recovery.
The regulators including Federal Reserve Governor Daniel Tarullo, were testifying before the Senate Banking Committee on a proposal to create one super regulatory agency replacing the four existing agencies, put forth by Senator Christopher Dodd, the Committee Chair. None of the regulators felt that the number of agencies involved felt that having four regulators contributed to the genesis of the crises.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
